British oil explorer Cairn Energy said it would buy Agora Oil & Gas for $450 million to increase its drilling activity in Britain and Norway in 2012 and expand its lower risk, near-term exploration assets.
The deal marks the first step in Cairn's strategy, outlined last month, aimed at reducing its exposure to exploration in Greenland where most of its assets are located.
The company, which had earlier indicated that it was interested in the Mediterranean region, did not rule out further acquisitions this year.
"There is the potential, certainly, for more transactions. We have the capacity to do that," Chief Executive Simon Thomson said on a call with reporters.
"I'd like to think, without giving any specific timing, that we will be active this year in terms of other opportunities," he added.
However, Thomson said that the company need not resort only to M&As to grow its portfolio with a number of other options like new licence applications, farm-in transactions, asset deals also a possibility.
Cairn's $1.2 billion drilling campaign in Greenland has dominated its activities over the past two years, but the company has failed to find oil and is seeking new projects that can offset its exposure to the country.
The company has enough firepower to fund more transactions with $1.2 billion in cash available, even after returning $3.5 billion to shareholders earlier this year.
The company also has the option to raise additional funds by selling its remaining 22% stake in its Indian business, Cairn India, whose value the company estimated at $2.9 billion when it reported results last month.
"Cairn clearly flagged with its 2011 results that it wanted to rebalance its portfolio and introduce near-term drilling activity and, perhaps, production," Liberum Capital analyst Andrew Whittock said in a note to clients.
"The acquisition will rebalance Cairn's portfolio by introducing near-term exploration and development opportunities but the price looks full and the deal dilutes Cairn's attraction as a high risk explorer," Whittock said.
Cairn said it would pay a total consideration of $450 million for the Stavanger, Norway-based Agora, when including the net working capital of $75 million, through a combination of about 43% cash and 57% Cairn shares.
It put the enterprise value of the proposed acquisition at $375 million, including $58 million of potential tax shelter in Britain and Norway.
Agora, currently owned by RIT Capital Partners PLC together with Lord Rothschild's family interests and company management and staff, had gross assets of about $120.1 million at December 31.
Cairn's shares, which lost their blue-chip status and were demoted to the FTSE 250 index, were trading up about 4% at 333.6 pence at 0928 GMT on Tuesday on the London Stock Exchange.
