Dana Petroleum is moving to reduce its reliance on the North Sea by acquiring assets in Egypt for around $310m (£155m) and might spend at least as much again in a country which chief executive Tom Cross reckons has great potential.

Aberdeen-based Dana said it had agreed to acquire the entire upstream operations of America's Devon Energy in a cash deal which should result in a substantial boost to production.

The portfolio that Dana is acquiring includes interests in 13 fields that are producing 12,500 barrels of oil daily.

In a trading update in February, Dana said oil and gas production surged 13% to an average 22,300 barrels of oil equivalent per day (boepd) in calendar 2006.

Besides the 1600 boepd produced in Russia, all the production came from Dana's portfolio of North Sea assets, which directors have been expanding recently despite increases in tax rates.

However, Cross said in a recent strategic review that experts at Dana had identified Egypt as ideal territory in which to deploy the company's expertise in boosting production from existing fields and exploration.

The costs of operations are relatively cheap, while explorers have enjoyed a high success rate.

Having established a bridgehead in Egypt through three smaller deals with majors including BP, Dana jumped at the chance to buy the Devon assets when the company decided to withdraw from Africa to focus on the US.

"The new portfolio contains a good balance of producing fields with numerous active drilling opportunities, on existing fields and within large exploration concessions," said Cross.

While the producing Devon assets have approximately 30 million barrels of proven and probable reserves, Dana will be hoping to boost these significantly. Large areas of the on and offshore acreage have had little exploration work completed on them.

If the Devon deal wins the necessary approvals it will result in a step change in Dana's exposure to Egypt.

The firm's previous biggest transaction was the £48m acquisition of a North Sea portfolio from Agip in 2002.

Nathan Piper, an analyst at Bridgewell Securities, said it appeared Dana had paid a very full price reflecting fierce competition for Egyptian assets.

However, Cross said the firm had agreed a "very fair" price for "real quality stuff".

While Dana had part-funded previous deals by trading stakes in its exploration portfolio, the company had started to generate so much cash that it had decided to fund the Devon deal using a new debt facility.

Cross said following adjustments for working capital and production, the Devon deal might involve an outlay of only £125m to £140m.

Leading banks had indicated they would lend Dana at least as much again.

The chief executive confirmed Dana could do a bigger deal in Egypt, where the firm wanted to build a "significant position".

He declined to comment on whether Dana would be interested in buying Edinburgh-based Melrose Resources, which has extensive acreage in Egypt.

After rising 21p in early trading, shares in Dana closed 2p lower at 1026p, valuing the company at around £895m.