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North Sea oil find starts Dana gushing

Financial Times: North Sea oil find starts Dana gushing

By Tom Burgis and Toby Shelley
Published: April 24 2008 03:00 | Last updated: April 24 2008 03:00

Shares in Dana Petroleum rose17.4 per cent after the company said it had struck oil in the North Sea, a discovery that could lift its output by about a fifth, if successfully developed.

The Aberdeen-based oil and gas exploration and production company said its West Rinnes exploration well produced high quality crude at a rate equivalent to 7,800 barrels a day during testing.

The shares rose 241p to £16.29, giving the FTSE 250 company a £1.4bn market value. The stock has risen 589p, or more than 50 per cent, in the past 12 months.

Dana said two or three producing wells could be drilled at the site, which would represent a significant boost to the company’s production of 45,000 barrels a day from operations in 30 fields in the UK, Norway and Egypt.

Dana owns 100 per cent of the West Rinnes well, but CIECO of Japan has an option to take a 35 per cent stake. Such a move would cost CEICO six times the net well costs.

The UK company said the test results exceeded expectations and the potential reserves could be more than 40m barrels. Development of the find is expected within three to four years.

Richard Rose, an analyst at Oriel Securities, calculated that, if Dana retained its 100 per cent interest and its 40m barrel estimate was accurate, the discovery could be worth 350p per share, using a price of $15 a barrel, a standard valuation for undeveloped North Sea oil.

Analysts at Merril Lynch wrote in a note: “Bottom line, this discovery is by far the most economically significant in Dana’s history”.

While smaller ventures are increasingly active in the North Sea, the oil majors are retreating.

Yesterday Royal Dutch Shell said it would shed 180 onshore jobs at its North Sea operations by 2010, in what Unite, the trade union, described as a “devastating blow to workers”.

Shell said: “The maturity of the North Sea and market pressures, driven by increased global demand, have resulted in costs in some areas rising by some 50-60 per cent over the past three years.”

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