Hello. Welcome to Company Focus. My name is Aamer Nawid, Analyst at Fat Prophets. Today I'm going to be taking a look at oil producer Dana Petroleum.

Regular viewers will be aware that over recent weeks we've talked about takeover targets such as BSkyB. We talked about potential takeover targets such as precious metals miner Fresnillo.

Continuing in that theme this week, mid-tier oil producer Dana Petroleum announced that it was entering into preliminary talks with Korean National Oil Company (KNOC). Dana has been at the centre of bid speculation for quite some time. The fact that talks have begun at an early stage may mean that an actual offer may finally be upon us sooner rather than later.

As far as 2010 goes, M&A activity in 2010 has been dominated by the energy players. Maybe that's a result of the recovering oil price which the chart here sort of demonstrates. There's an improvement in the mood across capital markets. So much so that around about $43bn worth of deals were done in the oil and gas space during the second quarter of this year alone. The actual number of deals equates to 165.

Focusing in on Dana, the company is being targeted as part of the great KNOC 3020 strategy, a self-sufficiency drive by the Koreans which aims to get output up to the 300,000 barrels of oil per day equivalent and get reserves up to 2bn barrels of oil equivalent by the year 2012. Clearly, the Koreans have been looking at their neighbours the Chinese; their sort of insatiable appetite for resources-led procurement deals.

Last year, KNOC's production came in at around about 116,000 ounces, reserves stood at around about 161m barrels of oil equivalent. So there is quite some way to go before they reach their targets and the clock is ticking.

Dana's share price has been much like the broader market, pretty sort of indifferent. That's before obviously the recent announcement regarding KNOC. The chart here demonstrates that perfectly. But KNOC have obviously been paying more attention to the fact that Dana's pre-tax profits came in at a healthy £56m last year. Reserve replacement ratio was up at around about over 300 per cent and that the company has got an exploration pipeline, or exploration plan, for 2010 which is very exciting.

As far as the exploration is concerned, Dana is looking at around about 18 exploration wells for this year. They've just been award two further blocks in the North Sea. Bids for licences for the 26 UK rounder are underway. Again, in Norway, bids are under evaluation and the company is also looking at further exploration prospects in Egypt as well. So plenty of reason for KNOC to actually go ahead and get the deal sorted.

News that Dana has just struck oil in the North Sea through the Blackbird oilfields may get KNOC to hurry its offer through. Dana has flexed its muscles at just the right time. The North Sea discovery has come hot on the heels of two discoveries in Egypt and with the large prospect, the Anne Marie prospect in the Faroe Islands with drilling there imminent around the corner, the way things are going, I wouldn't be surprised if further positive results also expediate the approach of KNOC.

Takeover targets though they may provide, or takeover speculation sorry, may provide a short-term boost to the markets as this chart here demonstrates. However, they're anything but certain.

Just last month Dana itself agreed to buy Petro Canada Netherlands for £270m, a deal which is actually going to increase production guidance by 20 to 25 per cent. However, now that the lay of the land is significantly different thanks to KNOC, the approval there from shareholders is anything but a formality.

From where I sit in terms of the KNOC deal, I think Dana will be taken over at some point, but I think there is going to be plenty of twists and turns on the way. The key things are what price and who is going to be doing the taking over. KNOC announced that they're going to basically have the potential to make an offer at a significant premium to Dana's share price. That was when Dana's share price was at £11.77 or thereabouts. Now that's led to estimations ranging from £16.45 to £21 - all very positive for Dana shareholders.

As far as who is going to do it, well KNOC are obviously in the driving seat right now, but investors shouldn't forget that it was last month that Austria's OMV were being linked to Dana. Dana has always been one to attract interest from other potential suitors. So potentially, a bidding war could start here.

Thanks for watching. Make sure you tune in again next week.