Enterprise Oil PLC History

Company Perspectives:

Enterprise Oil aspires to be the world's leading independent exploration and production company. Our vision is to deliver a superior combination of growth in value and financial returns by harnessing the power of our creativity and knowledge with integrity and passion.

Key Dates:

1983:

Enterprise Oil PLC is established in the United Kingdom.

1984:

Enterprise Oil shares are listed on the London Stock Exchange.

1985:

Company acquires Saxon Oil.

1988:

Rome office opens.

1989:

Company forms Enterprise Oil Norge Ltd. in Norway.

1991:

Sir Graham Hearne is appointed Chairman.

1992:

Enterprise Oil shares are listed on the New York Stock Exchange; Pierre Jungels is appointed chief executive.

1995:

Company opens office in Peru.

1998:

Company opens Brazil office.

1999:

Enterprise Oil and London and Scottish Marine Oil (Lasmo) decide not to merge and exploration begins in Western Siberia.

2000:

Company realizes a 30 percent increase in production with new fields in Norway.

2001:

Sam Laidlaw is appointed chief executive and natural gas activities are expanded.

2002:

Enterprise Oil board accepts $6.2 billion purchase bid from Royal Dutch Shell, subject to regulatory review and shareholder approval.

Company History:

Enterprise Oil PLC is the largest independent oil exploration and production company in the United Kingdom, competing against much larger companies, such as British Petroleum and Shell. Its core areas of oil and gas production areas (major finds of 100,000 barrels of oil equivalent per day or more) are the United Kingdom and Ireland, Norway and Denmark, and Italy, with growing operations in the U.S. Gulf of Mexico and Brazil. Other international joint ventures are in Australia, Greece, Iran, Western Siberia, Morocco, Kazakhstan, Cambodia, and Peru. The company has produced 242,000 boe/d (barrels of oil and gas equivalent per day) in 2001 and has 1.49 billion barrels of oil and gas in reserve 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.

Enterprise's Operations in the North Sea

The United Kingdom Continental Shelf (UKCS) in the North Sea remained the company's strongest area; at the end of 1993, Enterprise held interests in 113 blocks in the region, equating to a net acreage of 4,704 square kilometers, 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 1985 during its first full year of operations, the company purchased Tanks Oil and Gas, and agreed to a farm-in deal with Conoco, and acquired Saxon Oil. Two years later the company enhanced its international oil and gas interests and position considerably with the acquisition of Imperial Chemical Industries (ICI). This coup, however, was to be overshadowed by another venture Enterprise was simultaneously--and secretively--planning: the Nelson project.

Convinced by a combination of seismic data and sheer intuition of the great potential of one of the blocks 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--to 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.

Expanding Core Operations to Norway

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. Another important UKCS interest was 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. At of the end of 1993, it held interests in 24 blocks totaling 1,201 square kilometers. Early in 1994 the company clinched a deal to finance a three-year Norwegian North Sea exploration in exchange for the right to farm into three licenses held by Esso Norge--thus increasing its net acreage on the Norwegian Continental Shelf (NCS) by 25 percent.

By March 2001, Enterprise had interests in ten producing fields on the Norwegian Continental Shelf and one in Denmark, exceeding 100,000 barrels per day for the first time in 2000. Six out of seven wells drilled in the area were successfully producing. The Jotun field alone produced 130,000 barrels per day during 2000.

Another Core Production Area in Italy

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's later partnership with Eni, the Italian state oil company, in the lucrative Val d'Agri development, Italy became one of the company's three core areas of exploration and production.

Enterprise's enviable success with the Nelson field coincided, ironically, with a slump in industry prices, which, in 1993 and 1994 reached their lowest level in 20 years. In response, the company instituted cost-cutting measures in equipment and procedures and restricted its activities to newer fields where modern, cost-efficient production facilities were in place and thus operating costs were lower. In this effort Enterprise was in line with the industry as a whole, which, it was reported in 1994, had 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--engineering 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 wherever possible also help to reduce costs, as does increasing cooperation among offshore operators.

A Model for Inspired Leadership

Enterprise Oil has established a solid and 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 quite surprising and unexpected that the company became 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 U.K. 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 mudslinging was not worse was that the chairmen of the two companies were socially 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 resourcefully. 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 if the Lasmo takeover had 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 wisely. Financial analysts were 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.

Headed in the Right Direction

The Oil and Gas Journal reported in 1995 that Enterprise Oil had added several fields in the North Sea for exploration and production of forties blend crude (an important crude consisting of oil and gas liquids), to reach a production level of 400,000 barrels per day. Later that year, the company "took a 40 percent interest in block 50 in the sub-Andean Santiago basin from Argentina's YPF SA and Quintana Minerals Corporation, Houston." At this same time, Enterprise also opened an office in Lima, Peru.

Enterprise lived up to its vision of applying creativity for growth in financial returns in 1996. As stated in Hart's Petroleum Finance Week, Elf Enterprise Petroleum (EEP) sold its 63.7 million shares amounting to 12.9 percent of Enterprise Oil PLC following reorganization. Hart's states, "Enterprise estimates that it will assume £118 million (US $177 million) of net debt in return for mature oil and gas assets provisionally valued at £219 million (US $328.5 million) as a result of what amounts to a reverse merger."

Enterprise continued to be pursued by possible suitors, reported The Oil Daily in 1996. The company's "value has been pegged at US$2.5 billion to US$3 billion." Unsurprised, Enterprise Oil Finance Director Andrew Shilton said that the numerous takeover battles "have piqued interest in independents such as his firm."

Lucrative Gas Exploration

In 1998, Enterprise and EEX, an independent based in Houston, Texas, encountered hydrocarbon-bearing sands in two blocks in deep water in the Gulf of Mexico, The Oil Daily reported. In fact, Enterprise set a record for the deepest well in the area at 27,864 feet.

"People think that the Gulf of Mexico is played out, or overcompetitive," said Chief Executive of Enterprise Jungles Pierre. "But even in the shallow waters, Chevron announced recently the discovery of 1 tcf (trillion cubic feet) of gas" off the coastline of New Orleans. "The market possibly does not realize that 1 tcf of gas in the shallow waters of the Gulf of Mexico is worth around $1.5 billion, whereas 1 tcf in the Caspian is worth nothing."

More Expansion

The Financial Times reported that Enterprise and Lasmo again struggled over whether to merge in 1999, hoping to integrate their operations. The companies ultimately decided against the merger because of differing visions and strategies. Lasmo and British-Borneo were later acquired by Eni.

Later in the year, Enterprise took a 7.5 percent stake in Khanty Mansiysk Oil in Western Siberia. By 2002, this interest rose to 46 percent. The year 1999 also saw the beginnings of a joint venture in Brazil with Petrobras, Elf, and Shell to explore for hydrocarbons in the deep waters of the Campos Basin, covering 2,600 square kilometers. The Financial Times explained in July 2000 that the company also gained a 100 percent interest in the offshore Gyrfalcon field near Louisiana, along with interests in 19 other deep-water exploration blocks. Enterprise expanded its gas exploration and production, entering into an agreement with Iran to develop six offshore fields, the Weekly Petroleum Argus reported in 2001.

Because of technical problems in the North Sea and delays on sites in Italy, Enterprise's share price fell when it could not meet its reduced production target of 255,000 boe/d for the year, about 8 percent below expectations. This setback did not keep the company from targeting an output of 350,000 to 360,000 beo/d by mid-decade.

In late 2001, Enterprise apparently received another takeover bid, but turned it down after lengthy negotiations, refusing to identify the potential buyer. However, the Weekly Petroleum Argus speculates that the much larger Italian Eni may have been the bidder. The Knight-Ridder/Tribune Business News suggests that Eni was prepared to pay £3.4 billion for the company.

In January 2002, Petroleum Intelligence Weekly interviewed U.K. Energy minister Brian Wilson who said, "The demise of Enterprise would be bad news for the U.K. North Sea, which, as a mature province, has become increasingly dependent on smaller players with low-cost bases squeezing value out of smaller fields." He said the government policy of encouraging independents such as Enterprise in the North Sea was producing 'great results.'" He added that there was no guarantee that those projects deemed attractive to independents would appeal to a state-owned oil giant like Eni.

The End of the Struggle for Independence

Although Enterprise had given every indication of staying independent, its board accepted a bid of US$6.2 billion (£4.3 billion sterling, including debt) in April 2002 from Royal Dutch Shell. The deal was subject to acceptance from shareholders. Patrick d'Ancona, head of public relations at Enterprise said that the deal was a good price from Shell and that the transaction reflected the central plank of Sam Laidlaw's strategy that he announced in February of 2002, which was about delivering shareholder value. "At that time, our independence was seen as a tool with which to best pursue that," d'Ancona explained, "but, in the light of this offer, clearly we could accelerate the process of delivering value to shareholders. The board recognized the value of this bid."

Principal Subsidiaries:Enterprise Energy Ireland Ltd. (Ireland); Enterprise Oil do Brasil Ltda. (Brazil); Enterprise Oil Exploration Ltd. (Greece); Enterprise Oil Exploration PLC (Scotland); Enterprise Oil Italiana SpA (Italy); Enterprise Oil Middle East Ltd. (Iran); Enterprise Oil Norge Ltd. (Norway); Enterprise Oil Services Inc. (USA).

Principal Competitors:British Petroleum (BP); Shell Oil Company; Kerr-McGee.

Further Reading:

• Barker, Thorold; Corzine, Robert, "A Slow and Tortuous Dance Followed by a Final Stumble over Strategy and Culture," The Financial Times, April 1, 1999, p. 32.
• "A Bid Too Far for the Starship Enterprise," The Times (London), May 21, 1994.
• "Britain's Enterprise Oil Shapes Up to Do Battle with Italian Bidder," Knight-Ridder/Tribune Business News, January 16, 2002.
• "Cash Flow Booms for Enterprise," The Times (London), March 11, 1994.
• Davidson, Andrew, "Graham Hearne," Management Today, July 1996, pp. 50-54.
• "A Decade-Long Dance Draws towards a Close," Independent, April 29, 1994.
• "Defiant Enterprise Vows to Go It Alone," International Petroleum Finance, April 2001, p. 8.
• Durgin, Hillary, "International: Enterprise Oil in Gulf of Mexico Acquisition," The Financial Times, July 17, 2000, p. 26.
• "Elf Enterprise Finance Sells Its 12.9% Stake in Enterprise Oil Following Reorganization," Hart's Petroleum Finance Week, Potomac; February 5, 1996, p. 1.
• "Enterprise: Active in the Southern Appennines," Petroleum Economist, November 1997, p.16.
• "Enterprise, but Not Enough to Get Lasmo," Guardian, June 25, 1994.
• "Enterprise Flushed Out as Lasmo Stalker," Guardian, April 28, 1994.
• "Enterprise Oil Ready to Spend War Chest," Lloyds List, January 10, 1994.
• "Enterprise Recommended," The Financial Times, April 22, 1999, p. 50.
• "Enterprise Stake in Siberian Fields," The Financial Times, October 20, 1999, p. 32.
• "Exploration and Development Action Still Percolating in Peru," Oil & Gas Journal, December 4, 1995, p. 78.
• Fan, Aliza, "Strong Performance by Enterprise Places Company at Center of Takeover Speculation," The Oil Daily, June 10, 1996, p. 1.
• "Gas Is Golden for UK Oil Firms," Weekly Petroleum Argus, August 6, 2001, p. 2.
• "Gloves Off in Pounds 1.4bn Battle for Lasmo," Observer, June 12, 1994.
• Gorman, Brian, "UK's Enterprise Plans to Make Big Splash in Gulf of Mexico Despite Its Late Arrival," The Oil Daily, July 16, 1998.
• Hobday, Nicola, "Shell Buys Enterprise Oil for $6.2B," The Daily Deal, April 2, 2002.
• "The Independent: Enterprise Oil Results 2001," Chemical Business Newsbase, April 24, 2001.
• Key Facts 1994, London: Enterprise Oil, 1994.
• Key Facts 2002, London: Enterprise Oil PLC, 2002.
• Kroenwetter, Eric, "EEX, Enterprise Announce Discovery in Gulf, Compare Prospects with Shell's Auger Field," The Oil Daily, June 23, 1998.
• Lascelles, David, and Peggy Hollinger, "Analysts Fear the Errors of Over-Ambition," The Financial Times, April 28, 1994.
• "Lasmo, the Perfect Fit for Enterprise," Independent, April 28, 1994.
• Mortished, Carl, "Enterprise's 1.5bn Bid for Lasmo Flops," The Times (London), July 2, 1994, p. 21.
• "Mystery Bidder Puts UK Enterprise in Play," The Oil Daily, January 9, 2002.
• "National Sentiment Creates Complications for Energy," The Oil Daily, January 23, 2002.
• "Nelson's New Success Is the Result of Enterprise," Daily Telegraph, February 19, 1994.
• "New Financial Mind-Set Required for Further British Offshore Projects," Hart's Petroleum Finance Week, Potomac; September 11, 1995, p. 1.
• "North Sea Turns Rough for Britain's Oil Industry," The Times (London), March 8, 1994.
• "Oil Wars," Daily Telegraph, May 21, 1994.
• "Reserve Judgment," Economist, June 23, 1983, pp. 79-80.
• Rhodes, Anne K, "UK North Sea's Forties Blend Crude Assayed," Oil & Gas Journal, January 23, 1995, p. 48.
• "Takeover Targets Enterprise (Corporate)," Weekly Petroleum Argus, January 14, 2002, p. 2.
• "UK Independents: Last of a Dying Breed," Weekly Petroleum Argus, March 19, 2001, p. 6.
• "United Kingdom--UK Energy Minister Brian Wilson Has Had His Say in the Enterprise Oil Takeover Debate, Although It Remains Unlikely He Will Ultimately Do Anything to Protect the Company from the Advances of Italy's Eni or Any Other Suitor," Petroleum Intelligence Weekly, January 28, 2002, p. 7.
• Washer, Jim, "Sam's Plan Fails to Convince Enterprise Investors," Energy Intelligence Briefing, February 5, 2002, p. 1.

Source: International Directory of Company Histories, Vol. 50. St. James Press, 2003.

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