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Enterprise, Lasmo talks

LONDON: Enterprise Oil Plc and Lasmo Plc abandoned three months of merger talks on Tuesday, opening the door to larger bidders looking for cheap assets in a recovering market.

"Having considered the potential merits of a merger, and the contributions that each company would make..., both companies have concluded that they are better placed to add value independently," the British oil and gas exploration and production (E&P) companies said in a joint statement.

The two were always reluctant partners, old adversaries forced together to look for shareholder value by frustrated investors as weak oil prices sapped their strength through 1998. But the news came as sector giant BP Amoco Plc was poised to announce a $25 billion bid for Atlantic Richfield Co of the U.S., and as rumours swirled that another heavyweight, Texaco, might bid for the U.S. E&P group Burlington Resources. Analysts said the UK pair, once both FTSE 100 companies, are now takeover targets. In the downturn last year, E&P share prices fell much more sharply than did crude prices.

Brent crude oil has climbed back to a five month high in recent weeks after producer countries agreed output cuts to reduce a world oil glut, sparking a recovery in oil shares.

Since news of the talks were announced in early January, Lasmo shares have risen 52 percent and Enterprise's 30 percent amid the sector recovery, but analysts said corporate takeovers are still the fastest and cheapest way to acquire E&P assets.

Larger European integrated players like Elf Aquitaine of France, Italy's ENI and Britain's BG Plc have both said recently they are looking to increase their upstream exposure.

"It'll be a takeover feeding frenzy throughout the sector once its gets going", said Peter Hitchens of Williams de Broe.

Executives from Lasmo and Enterprise said after the announcement that they had identified just 20 million pounds ($32 million) worth of cost savings. The scope for savings was limited because both are already cutting costs to the bone independently, and there is very little in the way of assets overlap, with Enterprise operating mainly in OECD countries while Lasmo is in higher risk developing regions.

A board structure was also agreed, they said -- one area that had been seen as a likely stumbling block. Three of the four senior executives faced each other in a hostile bid struggle in 1994. That time Lasmo Chief Executive Joe Darby and Chairman Rudolph Agnew saw off the unwelcome approaches of Enterprise chairman Graham Hearne. Pierre Jungels became Enterprise CEO after the clash, but is seen in the industry as a strong personality who likes to get his own way.

Lasmo Finance Director Paul Murray said the talks had been aimed at generating "higher returns and a more competitive business". He admitted the talks had been to some extent forced on the companies by circumstances. "Investors were saying we had to demonstrate that the sector works.There was a bit of responding to challenges that were being thrown our way". Enterprise Finance Director Andrew Shilston said "We couldn't get a package that worked."We left no stone unturned.

We just couldn't get the package that in its entirety worked to add value for shareholders."

The two companies said they had not as yet received any outside bid approaches.-Reuters