The board of Petroceltic (PCI) confirmed that it has been engaged in detailed discussions with Dragon Oil (DGO) with regard to a prospective offer valuing Petroceltic at £492m.
Although Petroceltic pointed out that "there can be no certainty that any offer will be made", Dragon Oil has already completed the due diligence process. And the Petroceltic board confirmed that it would be willing to recommend a firm offer at the indicative offer price of 230p a share - subject to consultation with shareholders. Apart from the usual regulatory approvals, Dragon Oil would also need to obtain the consent of the Algerian government in relation to the acquisition of Petroceltic's assets in the country.
The proposed tie-up wouldn't have come as a particular surprise to analysts given that Dragon Oil had $1.9bn (£1.2bn) in cash at its disposal at the half-year mark. On the face of it, the experience of the two companies in frontier oil and gas markets is obviously complementary, especially given the broad geographic spread of Petroceltic's portfolio. The progress that Petroceltic has made with regard to the funding of the Ain Tsila gasfield in Algeria would have made the case for a bid all the more compelling. And, presumably, there are synergy cost savings in the offing, as Dragon, in partnership with ENEL Trade SpA, was recently awarded two exploration blocks in Algeria, Tinrhert Nord Perimeter and Msari Akabli Perimeter.
