BANGALORE - Independent oil and gas company Delta Petroleum Corp said it is exploring strategic alternatives, including a possible sale of the company.

The company, whose core areas of operations are the Rocky Mountain and Gulf Coast regions, said it hired Morgan Stanley and Evercore Partners to advise the board.

The move includes the possible sale of some or all of the company's assets, partnerships and joint venture opportunities, Delta said in a statement.

Given that the banks had limited the company's spending and were basically driving the bus, the writing was on the wall in our view, Wells Fargo analyst David Tameron said in a note.

Delta owns interests oil and gas properties in the continental United States and in federal units offshore California, near Santa Barbara.

Earlier this month, Delta posted a wider-than-expected quarterly loss and a 22 percent drop in production.

Third-quarter production of 5.14 billion cubic feet equivalents was also down 10 percent from the prior quarter.

The company also said its lenders had reduced its borrowing base to $185.0 million from $225.0 million.

Given DTPR has already been operating in a capital-constrained environment, and that third-quarter production fell by 10 percent, the next nine months will be very challenging for the company, in our view, the analyst said.

In September, Delta Petroleum had said initial gas volumes from its Gray well in the Columbia river basin were below expectations and the well had been deemed uneconomic.

Tameron said at year-end 2008, Delta reported proved reserves of 884 bcfe, 80 percent of which were proven under developed (PUD).

Given the uncertainties in how a potential buyer will value PUDs in a distressed situation, we see limited upside to current equity valuations, the analyst said.

Tameron said the M&A environment for gas assets remains challenging given uncertain gas fundamentals in the near term.

Shares of the Denver, Colorado-based company were trading slightly down at 91 cents on Nasdaq. They had risen as much as 5 percent to 97 cents earlier in the day. (Reporting by Arundhati Ramanathan in Bangalore; Editing by Gopakumar Warrier and Anil D'Silva)

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