Swedish oil firm Lundin Petroleum (LNDNY) celebrated a new North sea oil discovery with the announcement that its Norwegian operations, which includes the new find, had outgrown its other businesses which will be spun-off into a new company.
Shares in Lundin climbed as much as 3% following in early morning trading before falling back to 202.40 Swedish kroner ($22.71), up just under 2%. Lundin stock has gained 60% over the past year.
The "spin-off of non-Norway assets...may be seen as increasing the likelihood of M&A in the core (Norwegian) assets," noted Goldman Sachs analysts. The broker has a buy rating on Lundin with a 12-month price target of Skr214.8, including a Skr25 per share M&A component.
Lundin said, on Monday, that it had discovered between 35 million and 100 million barrels of oil equivalent at its Filicudi prospect in Norway's southern Barents Sea. The discovery is less than the about 200 million barrels that the company had forecast it would find but proves the presence of significant oil at the site and gives renewed hope of further discoveries from further exploratory drilling.
"Multiple additional prospects have been identified on the Filicudi trend...with total gross unrisked prospective resource potential of up to 700 MMboe," said Lundin. "Well results indicate significant upside potential that require further appraisal drilling."
The new discovery means that Lundin's Norwegian operations now account for about 96% of its total reserves, while output from the Norwegian operations is expected to equate to about 88% of production for 2017.
Lundin will increase that Norwegian weighting to 100% following the spin off its operations in Malaysia, France and the Netherlands into a new company to be called International Petroleum Corp.
Shareholders will be handed one new IPC share for every three Lundin shares they currently hold. Lundin's CFO Mick Nicholson will take on the role of President and CEO of the new group which will be listed on the Toronto and Stockholm exchanges. Teitur Poulsen, currently VP corporate planning and investor relations, will step up to CFO of Lundin.
"Lundin Petroleum will become fully focused on Norway, which I am convinced will serve to further crystallize the value of our high-growth asset portfolio in the North Sea and the southern Barents Sea," said Chairman Ian H. Lundin.
Shareholders will be asked to vote on the spin off in March. Lundin is 25.6% owned by its founding family, which have said they will back the spin-off.
BMO Capital Markets Ltd is providing financial advise on the listing for IPC. Blake, Cassels & Graydon LLP and Gernandt & Danielsson Advokatbyra KB are legal advisors.