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Norway's Eastern Echo Rejects Schlumberger's Bid

U.S. oilfield services group Schlumberger bid up to $679 million for Norwegian-listed Eastern Echo Holdings, aiming to expand its seismic operations at a time when record oil prices are driving demand.

The seismic survey company quickly rejected the unsolicited approach, which triggered a 65 percent jump in its stock, telling its shareholders that Schlumberger's terms did not adequately reflect its potential value.

Shares in Eastern Echo, which is building survey vessels to scan the ocean bed to locate potential oil and gas reserves, closed at 13.1 crowns, a premium to the bid and indicating hopes of a higher offer.

"The offer price of 11 to 12 Norwegian crowns does not sufficiently reflect the value potential of Eastern Echo," the Cyprus-registered company said in a statement.

Schlumberger's all-cash offer is already at hefty premium to Monday's price of 7.95 crowns for Eastern Echo, a start-up listed on the Oslo Axess market for smaller firms.

"Schlumberger seems to be securing more seismic capacity which is understandable given the demand, but they are not getting this at a bargain," said Knut Erik Loevstad, analyst at Handelsbanken Capital Markets in Oslo.

Shares in Schlumberger , the world's largest oil services company by market value, were up 0.7 percent to $98.34 in early New York trade.

Eastern Echo has four seismic vessels under construction and plans to build at least two more. Shipyards around the world are running at full capacity due to high demand, and their backlogs mean long waits for anyone thinking of ordering a new vessel.

Schlumberger already has a large seismic survey company, WesternGeco, serving an oil and gas industry hungry to find more resources to take advantage of record-high prices and make up for years of underinvestment in exploration.

"The potential acquisition of Eastern Echo will further boost our plans to meet continuing substantial demand for market-leading WesternGeco ... seismic technology services," Schlumberger Chief Executive Andrew Gould said in a statement.

Others Waiting in the Wings?

Based on a price of 12 crowns per share, the offer gives a premium of 57.9 percent over Eastern Echo's initial public offering price and 53.4 percent over its average weighted price over the last 20 trading days, Schlumberger said.

Eastern Echo said shareholders with about 15 percent of its shares deemed the offer too low and that it was working with its financial advisers ABG Sundal Collier to find alternatives.

But a fund owned by Norwegian bank DnB NOR sold its 3.02 percent stake in the company on Tuesday, signalling a willingness among at least some investors to cash out.

Including convertibles, Schlumberger controls 39.1 percent of Eastern Echo shares on a fully diluted basis, it said.

In an offer running until Nov. 9, Schlumberger bid a minimum of 11 crowns and a maximum of 12 crowns per Eastern Echo share "with the final price dependent on the acceptance level achieved under the offer," the Houston-based group said.

The bid is part of a consolidation push in the offshore sector, buoyed by brisk demand for all types of drilling and seismic services as oil companies boost exploration programs in response to oil prices that have risen to near $100 a barrel.

"We will certainly see more consolidation in the business," said Handelsbanken's Loevstad, adding that valuations of seismic and rig firms were "appealing because we are still in an early stage of the cyclical upturn."

Eastern Echo has agreed to build four of the vessels in a Spanish yard, two for delivery by the end of 2008 and two for delivery by the end of 2009.

Eastern Echo also intends to build two more vessels for delivery in Dubai by the first and second quarters of 2009.

The Eastern Echo deal stoked gains for other Norwegian seismic groups, with Petroleum Geo-Services advancing 6.4 percent and TGS Nopec up 4.6 percent.