Dana Petroleum’s South Korean takeover in doubt as KNOC holds firm on valuation

A statement from Dana Petroleum (LON:DNX) threw increased uncertainty that a deal will be struck to sell the company to the Korean National Oil Corporation (KNOC). KNOC told Dana that it would not increase the level of its offer from 1,800p, “regardless of any new information” from recent and future developments.

At 1,800p KNOC’s offer values Dana at £1.7bn. On the London Stock Exchange, Dana’s share price

slumped this morning, and was still down nearly 8% at 1,560p at midday

Since KNOC made its unsolicited approach in July, Dana has made two new oil discoveries - Fin in Egypt and Blackbird in the central North Sea - and brought gas production online at the Babbage field in the southern North Sea.
“KNOC is also unwilling to ascribe any value to Dana's ongoing business development programme, despite KNOC being aware of significant, well advanced, non-public and valuable activities ... which could materially increase oil production and reserves in the near term,” Dana stated.

“KNOC has refused to discuss either the value of Dana's assets or KNOC's assumptions behind the proposal.”

Furthermore, the FTSE250 producer said that the state-owned oil company will not start its due diligence without Dana's recommendation of KNOC's 1800p per share proposal.

Dana stated that it is not “prudent or warranted” to provide a recommendation to any conditional, unsolicited proposal at the 1,800p level. As such, the company believes that KNOC's refusal to sign a non-disclosure agreement leaves it with “no way of progressing confidential discussions”.

According to Dana, it has “made every effort to encourage and assist KNOC” to discuss value and perform appropriate due diligence, however the South Korean group did not respond to Dana’s offer to travel to Korea to meet with KNOC's board.

“Despite KNOC's refusal to date, Dana continues to extend its invitation to KNOC to access further details of ... ongoing developments to enable it to update its assumptions on, and make a full and fair assessment of, the value of Dana.”

In its daily ‘Oil & Gas Filter’, Westhouse Securities said the “announcement heightens the risk that the deal could potentially unravel completely”, adding “much will depend now on how KNOC chooses to respond. KNOC responded to Dana's statement in a separate release shortly after, saying it was “very disappointed” that Dana “does not agree that 1,800 pence per share represents a full and fair value for the company”. KNOC said its view is based on a “very detailed analysis” and it takes into account “all of the information available” including the recent operational and corporate transactions.

In reference to Dana’s ‘value enhancing developments’, the South Korean oil company rebuked the company’s assertions, reflecting on the company’s other, less favourable results.

“KNOC has made no negative adjustment to its offer for Bamboo and Monkwell drilling results or for the unfavourable movement in the USD/GBP exchange rate ... 1,800 pence per share fully and fairly reflects all of the company's recently announced and ongoing developments, together with its exploration potential”.

KNOC said it is currently considering its options, the 1800p proposal is no longer subject to the previously stated pre-conditions, and it reserves the right to reduce the offer price of the proposal.