Anglo-Dutch oil giant Shell has agreed to buy Enterprise Oil, Britain's biggest independent upstream oil firm, for £3.5 billion sterling.

Shell said it would also take on £800 million of Enterprise's debt, valuing the group at a total of £4.3 billion. It aims to cut annual costs at the merger group by $300 million.

Enterprise is best known here for its successful exploration work in the Corrib Gas Field off the west coast. The company is also involved in exploration work in the US and Italy.

'This is an attractive deal that offers a strong complementary fit for Shell EP in the UK North Sea and supports Shell's commitment to Norwegian growth,' said Walter van de Vijver, a managing director of Shell. 'Elsewhere it provides us with an attractive growth opportunity in Italy and improves Shell's position in Brazil,' he added.

The offer represents a 15% premium on Enterprise's share price before the start of trade.

The offer came just a week after Shell said it intended to buy Pennzoil-Quaker State Company, the leading US manufacturer of automobile lubricants, for about $1.8 billion.

Analysts noted that Shell had long been searching for an acquisition to raise its production growth, though some cast doubt on how much of an impact buying Enterprise would have in this respect.

The agreed tie-up could spark a bidding war with rival Italian suitor Eni, whose chief executive Vittorio Mincato said last week that the group might pay up to $5.5 billion for Enterprise.

But analysts said that although a rival offer from Eni could not be ruled out, such a move was unlikely given that Mincato had also said he was not interested in making a hostile bid for Enterprise.

Enterprise shareholders were nevertheless rubbing their hands at the possibility of a bidding war, having reacted angrily in January when Enterprise announced it had rejected an unsolicited offer without notifying them.

Enterprise president Graham Hearne had also reaffirmed his intention to keep the group independent when he released the group's 2001 results in February.

The takeover of Enterprise, which was created in 1982 by the British government to hold the offshore oil interests of British Gas and was floated in 1984, would herald the end of the last remaining medium-sized oil firm in Britain.