OilVoice - Dana Petroleum Announces Acquisition of Bow Valley Energy

Dana Petroleum Announces Acquisition of Bow Valley Energy

Monday, February 16, 2009

Dana Petroleum plc has entered into an agreement with Bow Valley Energy Ltd. that provides for the acquisition of Bow Valley by Dana pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the “Arrangement”). Pursuant to the Arrangement Agreement, and subject to certain conditions, including Canadian court approval, approval pursuant to the Investment Canada Act (Canada) and the approval of the shareholders of Bow Valley, Dana will acquire all of the outstanding shares of Bow Valley for a cash consideration of $0.50 per share representing an aggregate consideration of $219 million (US$177 million), which includes the assumption of an estimated $175 million (US$142 million) of net debt as at 31 December 2008.

The offer price represents a premium of approximately 70% over Bow Valley's closing share price of $0.295 per share on 13 February 2009 and a premium of 53% to the 20-day volume weighted average trading price of Bow Valley for the period ended 13 February 2009.

Tom Cross, Chief Executive Officer of Dana commented,
“The acquisition of Bow Valley is directly in line with Dana’s successful strategy of growing reserves and production in its core operating areas through both exploration and acquisition. Dana already has a working knowledge of the North Sea assets of Bow Valley which form a close fit with Dana’s existing North Sea portfolio. For example, both companies hold interests in the Enoch oil field and Bow Valley’s Kyle oil field is tied back to Dana’s Banff oil field.”

Transaction Highlights

• Bow Valley currently has four oil fields producing in the UK, namely Blane, Chestnut, Enoch and Kyle, with a fifth, Ettrick, due to come on-stream within the next three months.
• Once Ettrick is on-stream, Dana expects the acquisition of Bow Valley to add approximately 7,800 barrels of oil equivalent (“boe”) per day (“boepd”) of production to the Dana portfolio, representing an approximate 20% increase over Dana’s average production in 2008 of 39,400 boepd.
• Following completion of the transaction, Dana’s total number of producing fields will increase to 35.
• Bow Valley’s production is predominantly oil, with over 80% liquids and less than 20% gas. This is similar in balance to Dana’s existing production which in 2008 was 74% liquids and 26% gas.
• Dana estimates this transaction will increase its proven and probable (“2P”) reserves by approximately 11.3 million boe (as at 1 December 2008).
• Bow Valley’s assets have relatively low operating costs, in line with Dana’s operations, and are expected to generate strong cash flows, even in today’s commodity price environment.
• The assets are predominantly producing and therefore only limited additional capital investment is required and only relatively modest abandonment commitments are attached to these fields.
• Bow Valley’s existing licence portfolio includes a number of exploration and appraisal opportunities. These will be further analysed by Dana’s experienced North Sea team and could lead to additional prospectivity.
• Dana is currently drilling eight exploration wells across the North Sea and North Africa with a total of 17 wells scheduled for this year.
• At the end of 2008 Bow Valley had approximately £154 million of UK tax losses which will be available to Dana and which the Company believes will significantly benefit the enlarged Dana group going forward.
• Based on current estimates of the anticipated benefits of the above tax losses to Dana, the net acquisition cost to Dana is approximately US$9.47 per barrel.
• The transaction is expected to be accretive to Dana in terms of cash flow from year one.

Board Approvals and Recommendation

The Boards of Directors of Dana and Bow Valley have unanimously approved the transaction and the Bow Valley Board has concluded that the Arrangement is fair to Bow Valley shareholders and is in the best interests of Bow Valley and the Bow Valley shareholders. Bow Valley’s financial advisor has provided the Bow Valley Board with its opinion that, as of the date hereof, the consideration under the Arrangement is fair, from a financial point of view, to the Bow Valley shareholders. Accordingly, the Bow Valley Board unanimously recommends that Bow Valley shareholders vote in favour of the Arrangement. The Bow Valley directors and officers have entered into lock-up agreements in relation to their shareholdings in Bow Valley and have agreed to vote such shareholdings in favour of the Arrangement.

Pursuant to the Arrangement Agreement, Bow Valley has agreed to terminate any discussions with other parties and has agreed that it will not solicit or initiate discussions concerning the sale of material assets or any other business combination. Bow Valley has agreed to pay to Dana a non-completion fee of US$6 million in certain circumstances if the Arrangement is not completed. In addition, Dana has the right to match any competing proposal for Bow Valley in the event that such a proposal is made.

Financing

In connection with the transaction, and as a broader corporate refinancing initiative, Bank of Scotland is extending to Dana a new three-year US$400 million Revolving Credit Facility, and has itself made an initial commitment to Dana of US$300 million. This new corporate facility can be used for general corporate purposes including approved acquisitions and provides inter alia, certainty of funding to meet the consideration payable to Bow Valley shareholders and all associated transaction costs, and to fully repay all of Bow Valley’s outstanding bank indebtedness. As at 31 December 2008, Dana had cash balances of £159 million and no bank debt outstanding.

Andrew Wright, Director, Bank of Scotland Energy commented,
"Bank of Scotland is delighted to continue working with Dana and to support it's acquisition of Bow Valley. With the strong track record of Dana and Bank of Scotland in the North Sea we are sure this acquisition, of a complementary business, will be successful for Dana and further strengthen the Bank’s long and successful relationship with Tom Cross and his highly experienced management team."

(All figures are in Canadian dollars unless noted otherwise)

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