BP, Det norske in $1.3 bln Norwegian Oil Merger

All-share deal aimed at cutting costs, challenging Statoil (STO); new venture could produce more than 10 pct of Norway's oil.

Oil companies BP and Det norske have agreed to merge their Norwegian businesses in a $1.3 billion all-share deal to cut costs, challenge Statoil's dominance of the local industry and look for more acquisitions.

The new venture, which could produce over a tenth of Norway's oil output, will offer BP an opportunity to tap into new oil production and reserves in the next decade after it cut back exploration in recent years.

Norway's seas, unlike Britain's, are offering more opportunities for exploration, with authorities opening up new acreage in the Arctic.

In particular, BP will gain exposure to the giant Johan Sverdrup field, the largest oil find in Norway in 30 years, in which Det norske has a 11.57 percent stake, and which is expected to start production in late 2019.

The merged entity, to be called Aker BP, will be part owned by Aker, an investment vehicle that is Det norske's main shareholder and controlled by Norwegian billionaire Kjell-Inge Roekke. It will hold 40 percent, with BP taking 30 percent and the remaining 30 percent controlled by other shareholders.

The new company, which will include all of Det norske's assets but only a small proportion of BP's, will also provide an opportunity to cut costs as oil companies worldwide battle with a 55-percent fall in the price of crude since June 2014.

"There is a need in the industry for closer collaboration, for pooling of rigs, for harmonising standards, all to get the costs down," said Martijn Rats, head of European oil and gas equity research at Morgan Stanley (MS).

"For BP, this transaction is important but at the scale of the company, it is quite modest."

CHALLENGING STATOIL
For Det norske, the deal will strengthen its position as the biggest independent operator of Norwegian oil platforms and challenge the dominance of state-controlled Statoil, responsible for 60 percent of the Nordic country's oil and gas output.

Last month, Statoil increased its stake in Swedish oil firm Lundin Petroleum to 20 percent, one of its partners in Johan Sverdrup, bolstering its dominance. After that deal, Det norske CEO Karl-Johnny Hersvik, who will head the new entity, called for a bigger competitor to Statoil.

At 0910 GMT, BP shares were down 1.3 percent, roughly tracking the European oil and gas index, while Det norske shares were up 8.3 percent.

"This deal is clearly positive for Det norske. (It) creates a significantly stronger company, with a broader portfolio and stronger balance sheet, and the pricing reflects positively on Det norske's existing portfolio," Carnegie analyst Kjetil Bakken said in a note to clients.

Aker BP will be looking for acquisitions. "We will look predominantly for oil assets and will put value over volume," Hersvik told a news conference.

The combined company will hold an estimated 723 million barrels of oil equivalent P50 reserves, with a 2015 joint production of approximately 122,000 barrels of oil equivalent per day, the companies said.

A quarterly dividend policy will be introduced by the new company, with the first payment planned for the fourth quarter of 2016, conditional upon the approval of creditors.

The deal is expected to close in the third quarter, pending shareholder and regulatory approval. The second-largest shareholder in Det norske, Folketrygdfondet, has already said it would back the deal. The Norwegian oil minister also welcomed it.

KLP, Det norske's sixth-biggest investor with a 1.3 percent stake, said the deal was a good solution for the companies and shareholders, but portfolio manager John Harald Henriksen added it was too early to say if KLP would vote for it.

By Henrik Stolen and Karolin Schaps