Oil firm Dragon Oil
Dragon Oil notes the recent movement in Bowleven's share price and confirms that it is in the preliminary stages of exploring a possible offer for all of the issued and to be issued share capital of Bowleven, the firm said in a statement on Friday.
Shares in Bowleven surged 70 percent to 126 pence at 1:54 p.m., hitting a five-month high, and exceeding earlier gains of around 18 percent fuelled by takeover rumours before Dragon announced its interest.
Both Bowleven and Dragon declined to comment when asked by Reuters whether talks were underway and for further details on any deal.
Dubai-headquartered Dragon, which is 52 percent owned by Dubai's Emirates National Oil Company, has expressed its intention over the last year to expand its reach beyond Turkmenistan, where 100 percent of its production is based, seeking to spend a large cash pile which it has built up from rising production and on a higher oil price.
Analysts at Bank of America Merrill Lynch said on Wednesday that Dragon had a $1.4 billion cash pile to make acquisitions, while management have indicated that they would look at deals in the range of $200 to $500 million.
Oriel Securities analyst Vugar Aliyev said an acquisition of Bowleven would represent a major strategic change for Dragon and he viewed the potential deal as neutral to slightly negative.
If they spend $700 million on the company and then another significant portion of their cash developing it, then I would be concerned, he told Reuters.
Shares in Dragon traded down 2.5 percent to 530.5 pence at 1:54 p.m., underperforming the European oil and gas index <.SXEP> which was 0.2 percent higher.
Britain's Bowleven has made a series of oil discoveries off the coast of Cameroon, none of which have to date been developed, meaning it does not have production.
Its primary oil fields are known as MHLP-7 and Sapele. While the company has a development plan for MHLP-7, its understanding of the Sapele asset is not as well advanced.
The value of any takeover approach Dragon launches will likely hinge on how it views Sapele.
If you're Dragon you might think I'm willing to pay for MHLP-7, where we can hopefully get production up and running relatively quickly, and then I get Sapele and exploration for free, Canaccord Genuity analyst Braden Purkis said.
Should Dragon look to only pay for MHLP-7, a bid in the range of 150 pence to 160 pence would make sense, said Purkis. A 155 pence per share offer would value Bowleven at about 456 million pounds.
Tullow Oil, another London-listed oil firm, was on Friday rumoured to be lining up a bid for Bowleven before Dragon made its announcement.
Those assets (of Bowleven's) are probably a better fit for a bigger company with a stronger balance sheet like Dragon, said Aliyev.
(Reporting by Sarah Young; Editing by Rhys Jones and David Cowell)