Enterprise Oil Plc Business Information, Profile, and History

History of Enterprise Oil Plc

Enterprise Oil plc is the largest independent oil exploration and production company in the United Kingdom. With a significant presence in the North Sea and interests in 17 countries overall, primarily concentrated in Italy, the Black Sea, Australia, and Southeast Asia, the company is a growing force in the discovery, development, and acquisition of oil and gas reserves worldwide. Enterprise Oil was formed in 1983 (although it was officially incorporated at the end of 1982) as a government initiative by the secretary of state for energy to take on the oil-producing activities of the British Gas Corporation just prior to that state-owned organization's privatization. The fledgling company was given a good start by its government parent, launched free of debt and protected by tax breaks in the 1983 budget, allowing it to write off over 80 percent of its exploration costs against taxes on existing production. Floated on the London Stock Exchange in 1984, Enterprise was the inheritor of several interests in the North Sea, including five commercial oil fields, a stake in 11 fields where oil had already been found, and a share in 14 other possible sites. In the next decade, Enterprise substantially widened its inherited interests in the North Sea and created an increasing portfolio of international interests.

The United Kingdom Continental Shelf (UKCS) in the North Sea remained the company's strongest area; as of the end of 1993 Enterprise held interests in 113 blocks in the region, equating to a net acreage of 4,704 sq. km., from which the company drew 72.8 percent of its total production. Almost from its inception, Enterprise concentrated on strengthening its U.K. interests through acquisition and exploration. In its first full year of operations, 1985, the company purchased Tanks Oil and Gas, agreed a farm-in deal with Conoco, and acquired Saxon Oil. Two years later the company enhanced its position considerably with the acquisition of Imperial Chemical Industries'(ICI) international oil and gas interests. This coup, however, was to be overshadowed by another venture Enterprise was simultaneously--and secretively&mdash+anning: the Nelson project. Convinced by a combination of seismic data and sheer intuition of the great potential of one of the blocks in which it had acquired an interest through its earlier deal with Conoco, Enterprise completed a complicated series of swaps with other oil companies--all unsuspecting of Enterprise's objective&mdashø achieve 100 percent ownership of the block, some 180 kilometers to the east of Aberdeen. The company's maneuvers, described in retrospect by the Independent as "little short of brilliant," were vindicated when in 1988 Enterprise announced its discovery of one of the largest oil finds of the decade. (The project was named after the famous British admiral Horatio Nelson, with whom Enterprise, with its head office in London's Trafalgar Square, claims an affinity.) Enterprise subsequently reduced its stake in the Nelson field to a 31.57 percent interest. However, it retained its position as operator of the £1.1 billion project, becoming the first independent U.K. company to operate a major North Sea oil field. The operation came on stream in February 1994.

In 1989 Enterprise further consolidated its position in the UKCS by acquiring the non-U.S. interests of Texas Eastern. In 1991, through a joint arrangement with the French company Elf Aquitaine, Enterprise acquired all of Occidental Overseas Ltd.'s North Sea license interests; as a result, the company also obtained a one-third interest in Elf Enterprise Petroleum Ltd. (EEP), the holding company of Occidental's former U.K. assets. Among other important UKCS interests is Enterprise's stake in the Scott oil field, which began production in 1993.

Enterprise's activities in the North Sea include projects in Norway as well. The company's operations on the Norwegian Continental Shelf began in 1989, when it formed Enterprise Oil Norge Ltd. with the Norwegian interests it had acquired from Texas Eastern. Over the next four years, Enterprise built up its presence in the area, holding interests, as of the end of 1993, in 24 blocks totaling 1,201 sq. km. Early in 1994 the company clinched a deal to finance a three-year Norwegian North Sea exploration in exchange for the right to farm in to three licenses held by Esso Norge--thus increasing its net acreage on the Norwegian Continental Shelf by 25 percent.

The North Sea has historically been and still remains Enterprise's primary area of operations, but the company is increasingly developing international interests as well. It first targeted Italy for exploration in 1985, with successful results. Enterprise opened a Rome office in 1988 and within four years had discovered three promising sites for exploitation: Monte Alpi, Tempa Rossa, and Cerro Falcone. With Enterprise holding interests in 27 licensed blocks in the region, Italy is the company's largest concern outside of its core area. Pursuing what the company terms a "geographically focused" policy, Enterprise also holds smaller but growing interests in Bulgaria, Romania, Australia, Cambodia, Indonesia, Laos, Vietnam, Ireland, Turkey, Kazakhstan, Malaysia, Taiwan, the Seychelles, and Equatorial Guinea. Perhaps an indication of Enterprise's future development may be deduced from those countries in which it has opened an overseas office: the first seven listed above.

Enterprise's enviable success with the Nelson field coincided, ironically, with a slump in industry prices which, in 1993⁄94, reached their lowest level in 20 years. In response, the company has instituted cost-cutting measures in equipment and procedures and restricted its activities to newer fields where modern, cost-efficient production facilities are in place and thus operating costs are lower. In this effort Enterprise is in line with the industry as a whole, which, it was reported in 1994, has formed a government-supported initiative, Cost Reduction in the New Era (Crine). Some 36 U.K. offshore operators are members of Crine, which aims to reduce the capital costs of new North Sea developments by standardizing equipment and procedures. In the past each project was developed with its own individually tailored--and thus highly expensive&mdash-gineering plan; oil companies, including Enterprise, are now recognizing that a more standardized approach to development can be much less costly and just as effective. The standardization of procedures and an increasing use of automation where possible also help to reduce costs, as does increasing cooperation among offshore operators.

Enterprise Oil has established a solidly favorable reputation over the years: the Independent claimed in 1994 that Enterprise "has been a showcase of inspired management and leadership in a difficult market," and the Financial Times agreed, saying Enterprise "has built a reputation for strong management and far-sightedness." It was thus considered more the pity that the company should have become embroiled in an almost farcical--and ultimately unsuccessful--takeover bid for a rival independent oil and gas company, London and Scottish Marine Oil (Lasmo).

The two companies "started out as the Tweedledum and Tweedledee of the UK oil industry," according to the Financial Times, but their fortunes soon diverged dramatically. At one time Lasmo was the more successful and enjoyed the status of the United Kingdom's leading independent oil and gas company; indeed, in 1986 the company actually owned a substantial stake of Enterprise (some 30 percent), and speculation was rife that Lasmo would attempt a takeover. Enterprise, however, greatly strengthened its position, first through its acquisition of ICI's worldwide interests and then with the great leap forward of the Nelson coup, and thus became clearly too powerful for takeover.

Lasmo, on the other hand, found its fortunes declining, reaching the nadir following a disastrous 1991 takeover of another oil and gas company, Ultramar. Financial pundits delighted in repeating the joke of Lasmo's strange arithmetics: how to add a £1 billion company to another £1 billion company and end up with--a £1 billion company. Losing money, seriously strapped for cash, and staggering under a backlog of debt, Lasmo appeared ripe for takeover--or so Enterprise thought.

Its bid got off to an unfortunate start when Enterprise was forced to show its hand before it was ready; leaked information had caused Lasmo's share price to rise dramatically, prompting the watchdog Takeover Panel, in an unusual move, to require Enterprise to publicly clarify its intentions. Over the next few months, a media battle ensued. Enterprise was accused of megalomania, Lasmo of monumental incompetence. Enterprise was charged with dubious accounting practices, Lasmo with staggering incompetence. Enterprise was denounced for offering Lasmo shareholders a poor deal, mere "junk paper," Lasmo for really quite astonishing incompetence. Gleeful city commentators speculated that the only reason the mud-slinging was not even worse was that the chairmen of the two companies were socially quite friendly, often hunting wildfowl together. In July 1994, Enterprise's bid for Lasmo failed.

Enterprise wanted Lasmo because it believed that the two companies would dovetail together neatly. Simply put, Enterprise had significant cash reserves but relatively poor long-term development prospects, whereas Lasmo enjoyed potentially profitable assets but, debt-ridden as it was, had little cash to exploit them. The two companies to some extent overlapped geographically, but Enterprise was stronger on the oil side whereas Lasmo had more gas reserves. Acquiring Lasmo would have roughly doubled Enterprise's size, but Enterprise's assertion that the company needed to be one of the "big boys" to compete in the oil business was widely ridiculed; even had the Lasmo takeover been accomplished, it could not have brought Enterprise into the league of the real big boys, such as Shell and Esso.

Enterprise suffered some damage to its reputation during the course of its failed bid, but the harm would probably be short-lived for a company that enjoyed a reputation for making good, solid deals prior to that fiasco. More importantly, the media spotlight trained on the company during the bid process highlighted questions about Enterprise's future. Riding high in 1994, thanks particularly to the handsome payoffs of the Nelson and Scott developments, Enterprise faced potential difficulties as the decade progressed. In the oil industry a company is only as good as its last discovery. The production of Enterprise's star players, Nelson and Scott, would have peaked by 1995 or 1996, and industry commentators stressed that the challenge for Enterprise would be to discover or acquire new profitable sources. With oil prices so low, however, it was risky to invest significant capital in exploration, even for the financially healthy Enterprise; in 1993 drilling levels had fallen to their lowest in the company's history.

Prudent management and disciplined control of costs placed Enterprise in a strong position in the mid-1990s. Satisfying revenue from its high-profile projects left the company financially robust, despite falling oil prices. Its healthy cash base, however, needed to be invested, and invested wisely. Financial analysts may have been divided over whether Enterprise's takeover of Lasmo would have been a good thing or not, but clearly the company had to acquire or discover new oil-producing assets in the near future.

Principal Subsidiaries: Enterprise Oil Exploration Ltd. (various countries); Enterprise Oil Indonesia Ltd.; Enterprise Oil Italy Ltd.; Enterprise Oil Norge Ltd. (Norway); Enterprise Petroleum Ltd.; Saxon Oil Ltd.