Korea National Oil Corp (KNOC) confirmed it was in "very preliminary" talks over a cash offer for Britain's Dana Petroleum, as it looks to use a $6.5 billion warchest to help double the country's oil reserves, according to Reuters. The KNOC confirmation on Friday followed a Dana statement after the market close on Thursday detailing a very preliminary approach, all of which helped push Dana stock up 23 percent to 1,452 pence, its highest level since last October. "We had approached Dana but no concrete progress has been made," a KNOC source told Reuters earlier on Friday, declining to be identified due to the sensitivity of the issue. UK media reports on Thursday put the price offered by state-run KNOC at as much as 1,800 pence per share, which would value the company up to 1.7 billion pounds ($2.58 billion). London-based analysts were sceptical on a deal, however, given the preliminary nature of the approach and the rumoured price. "If the shares reach 1,500 pence today we would recommend selling on the grounds that it's far from certain the deal will go through," Evolution Securities analyst Richard Griffith said. Oriel Securities analyst Nick Copeman said KNOC would be unlikely to pay for Dana's exploration upside and, based on its existing reserves, his valuation would not support a significantly higher offer than 1,450 pence. Dana currently trades on 9.6 times estimated earnings, while an offer at 1,800 pence would value it at 16.7 times forecast EPS, according to data from Thomson Reuters StarMine. KNOC, with a mission to more than double South Korea's oil reserves this year to 300,000 barrels per day, has said it wanted to complete a major deal in the first half of the year but has failed to do so. "KNOC's been basically looking at all assets in the market, but it seems uncomfortable with bidding right now, as asset prices have hiked quite a lot," said a Seoul-based senior banker who declined to be identified as he was not authorised to talk to the media. "KNOC has no funding problems... But the firm seems simply pressured with no deal so far this year." KNOC, which lost out to China's largest oil refiner Sinopec in a $7.24 billion deal for Swiss oil explorer Addax Petroleum Corp, has made no deals so far this year. Its last major deal was a $335 million purchase of Kazakh oil developer Sumbe late December, beating Sinochem. That followed a $1.7 billion buy in October of Canada's Harvest Energy Trust in the country's biggest energy investment. SHIFTING FOCUS With the BP oil disaster in the Gulf of Mexico still unresolved, some analysts say the industry's focus in M&A may shift to assets focused in Africa and Asia. "We are aiming to acquire some stakes in oil fields either in Africa or South America. Our initial plan was to buy within the first half of this year, but now a deal is likely by the end of the year," the KNOC source said. Dana has proven and probable reserves of 223 million barrels of oil from 36 oil and gas fields in such regions as Egypt, the North Sea and Morocco. "Per-barrel-average of proven and probable reserves is now valued at $13 roughly... and thus $10 per barrel in Dana's case seems not so overvalued," said Jae-joong Kim, senior analyst at Woori Investment & Securities. South Korea, the world's No.5 oil and No.2 liquefied natural gas (LNG) importer, plans to make a record spending of more than $12 billion in overseas energy and resources deals this year. This will be led by KNOC with spending of more than $6.5 billion to add between 50,000 and 100,000 barrels of oil production per day.
