October 15, 2019
By CardinalStone Research
This morning, Seplat Petroleum Development Company Plc (Seplat) announced its intention to acquire the entire issued and to be issued shares of Eland Oil & Gas Plc (Eland) via cash resources of Seplat and new borrowings. Seplat is set to pay 166 pence (representing a 28.5% premium to current Eland’s market price) in cash for each of the 230,243,525 Eland shares. The total shares is calculated via a reference to 215,591,741 Eland shares in issue as at 14 October 2019 and a further 14,651,784 Eland shares which may be issued on or after the date of this announcement. In all, Seplat will be deploying c. £382 million on a fully diluted basis for this transaction. This amount is c.111.5% and c.189.4% of the company’s H1’19 net cash balance and operating cash flow respectively, providing some justification to the company’s plan to augment internal cash with new borrowings to complete the transaction. In addition to a possible decline in cash balance, the transaction could lead to a rise in long-term debt liabilities.
Some Highlights on Eland
Eland is an oil & gas company that is listed on the London Stock Exchange (LSE). The company renewed its OML 40 licence (working interest of 45%) in October 2018 and was able to increase its associated net production to an average of 9,948 bopd in H1’19 (vs. 7,716 bopd) on overall 2P reserves of 91.5mmbbls. Eland’s output is likely to be aided by a full commencement of production in Ubima marginal field (40% working interest), which is in the test phase. At the end of H1’19, Eland proposed its maiden interim dividend of 1 pence per share, representing approximately $2.6 million return to shareholders. According to Eland’s management, inclusive of buyback, the company has returned c.$9 million to its shareholders in the 12 months leading to 30 June 2019.
OML 40 average half yearly gross production chart (bopd)
Potential Impact on Seplat
According to both companies, the acquisition is likely to:
- Increase Seplat’s 2P liquid reserves by 41MMbbls to 268MMbbls with 2P oil reserves and 2C oil resources also expected to rise by 65MMbbls to 330MMbbls, giving total oil and gas reserves of 626MMboe.
- Lead to a 38Kbopd increase in Seplat’s working interest liquids production, which when combined with Seplat’s prior gas production guidance, translates to a total working interest production of 64Kboepd in 2019. This new guidance is materially higher than the previous production target range of 49Kboepd to 55Kboepd and our FY’19E estimate of 48.3Kboepd.
Subject to court and other necessary approvals, the Scheme is expected to become effective in late 2019. The scheme document, which will contain further information about the acquisition and notices of court and general meetings, is expected to be published within the next 28 days.
SEPLAT is trading at an EV/2P ratio of 1.4x compared to 2.1x for selected peers. We have a BUY rating on the stock.
