Oil minnows planning £400m merger

Dana Petroleum and Venture Production are in merger talks to form a £400m oil and gas group that would be Britain's third-largest independent player.

It is thought that the companies, which are listed in London, came together through their shared North Sea interests. However, a deal would be complex to structure as Dana's strengths lie in exploration, while Venture is primarily a production business.

The talks are thought to be at an early stage, with no formal proposal on the table. Analysts believe any deal will be structured as a nil-premium all-share merger. Although Dana's market value of £200m is greater than the £165m market capitalisation of Venture, the latter's share price has been hit by two recent profits warnings.

The companies are 50-50 joint owners of the Greater Kittiwake area of gas fields in the North Sea - where Venture is the operator. Venture specialises in North Sea assets that would not be of interest to the energy majors. Dana's production interests are spread across the world.

Outside the North Sea, its interests include prospects in Mauritania, Russia and Indonesia. The merged company would have 19 producing fields, with an output of 35,000 to 40,000 barrels a day.

The companies declined to comment yesterday, although weekend speculation on the deal is likely to lead to a statement confirming talks today. Venture, which counts 3i and the Weinstock and Rothschild families among its biggest shareholders, will be keen to argue that the recent production problems it has experienced have not forced it into merger talks. Venture's production is now three to four times its output levels when it floated two years ago.

The attraction of the merger would be bringing together Venture's steady production and cash flow with Dana's exploration upside, allowing them to fund a much bigger exploration programme.