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Will investors take into account Seplat’s N172bn offer for Eland Oil?

Seplat

Seplat Petroleum Development Company Plc (Seplat) on Tuesday October 15 disclosed that it is acquiring Eland Oil & Gas Plc for a recommended cash of £382million (N172billion). Seplat Petroleum Development Company Plc is a leading Nigerian independent oil and gas company listed on both the Nigerian and London Stock Exchanges.

The Boards of Seplat and Eland reached agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Eland by Seplat.

Terms of acquisition

The acquisition is to be effected by means of a scheme of arrangement under Part 26 of the Companies Act. The acquisition represents a premium of approximately 28.5 percent to the closing price per Eland Share of 129.2 pence on October 14, 2019 (being the latest practicable date prior to this Announcement).

It also represents a premium of approximately 32.6 percent to the three- month volume weighted average price per Eland Share as of October 14, 2019 of 125.2 pence; and a premium of approximately 32.7 percent to the six-month volume weighted average price per Eland Share as of October 14, 2019 of 125.1 pence. Eland Shareholders on the register at the close of business on October 18, 2019 will be entitled to receive and retain the interim dividend of 1 pence per Eland Share to be paid on October 31, 2019.

Seplat stock trading information

At N517 which Seplat traded on Tuesday October 15, its share price was unchanged as against the preceding trading day. Seplat share price had reached a 52-week high of N700 and a corresponding week low of N397.70. With outstanding shares of 588,444,561 units, Seplat equity capital is in excess of N304.2billion.

Financing the acquisition

The cash consideration payable under the acquisition is being wholly funded through a combination of existing cash resources of Seplat and a new loan facility available to Seplat. Citi, as sole financial adviser to Seplat, is satisfied that sufficient resources are available to Seplat to satisfy in full the cash consideration payable to Eland Shareholders under the terms of the Acquisition.

Seplat grew H1 profit by 15 per cent to $121million

Seplat recorded a rise of 15 percent in its half-year (H1) profit before deferred tax. In its unaudited consolidated half-yearly financial results for the period ended June 30, 2019 made available to the NSE and LSE on Tuesday, Seplat reported a profit before deferred tax of $121million (N37billion) from $105million (N32billion) reported in the first half of 2018. The Company’s revenue for the period also appreciated by four per cent to $355million (N109billion), which is higher than the 2018 half-year figure of $343million (N105billion).

On a similar note, the oil firm’s gross profit rose by 19 per cent to $207million (N64billion) from $174million (N53billion) reported in 2018 half-year. Operating cash flow hit $255million from $245million, indicating a four percent appreciation year-on-year. The market expects this positives to continue in the third-quarter (Q3) results which the Board will approve at its October 24 meeting in Lagos.

About Seplat

Seplat is a leading independent oil and natural gas producer in the Niger Delta area of Nigeria, and a leading supplier of processed natural gas to the domestic market, fully listed on both the Nigerian Stock Exchange and the London Stock Exchange since April 2014.

As a full cycle upstream oil and gas exploration and production company, Seplat’s focus is on maximising hydrocarbon production and recovery from existing production and development assets, realising the upside potential within the portfolio through focused appraisal and exploration activities and farmin into new opportunities in Nigeria.

Seplat’s existing portfolio comprises of direct interests in five blocks in the Niger Delta area and a revenue interest in an additional block. Eland is an independent oil and gas company focused on production, development and exploration in West Africa, particularly the Niger Delta region of Nigeria.

Read also: Updated: Seplat takes lead in indigenous scramble for onshore assets

Eland

Eland was founded in 2009 with a strategy to deliver exceptional shareholder returns through a combination of development, production growth and exploration success. In 2012 Eland, through its joint venture company, Elcrest, purchased a 45 percent interest in OML 40 and in 2014 acquired a 40 percent. stake in a second licence, Ubima.

Led by its experienced senior management and operating team, the Eland Group took gross production on OML 40 from 3,338bopd average daily production for producing days in 2014 to a peak 2018 production rate of over 31,000bopd, an increase of over 800 per cent. Eland’s headquarters are in Aberdeen, with additional offices in London, Lagos, Benin City and Abuja.

Analysts comment

“Following this acquisition, we estimate an increase in 2020 production level. For context, our 2020E Seplat standalone production forecast prints at 33kpd (2019E; 24.6kbpd) while Eland has a working interest of 16kbpd (including new production at the Gbetiokun field in August). Seplat’s 2P liquids reserves is also estimated to increase by 41mmbbls to 268mmbbls, with its 2P Oil Reserves and 2C Oil Reserves expected to increase by approximately 65Mmbbls to 330Mmbbls, bringing total oil and gas reserves to 626Mmboe”, said ARM Research team.

“The acquisition is scheduled for completion at the end of 2019, after which the two entities will continue to run separately in 2020 (but with consolidated financials) and then a full integration of the entities in 2021. Overall, we see this playing out positively for Seplat’s shareholders, given potential boost to earnings per share (EPS) on the long term. This, in addition to upcoming ANOH gas project further boosts the upside on Seplat of N828.90 which is a 69percent upside from current pricing,” according to the analysts at ARM.

Stakeholders comment

While commenting on the acquisition, George Maxwell, CEO of Eland said: “This recommended offer from Seplat represents the culmination of a very successful journey by Eland, the management team and all of its stakeholders. Since founding Eland, we have, jointly with our partners in Elcrest, acquired our interests in OML 40, a non-producing asset, achieved an all-time record production on this asset and become a significant independent producer in Nigeria’s E&P landscape and one of the biggest oil producers on London’s AIM market.”

“Eland has, in a period which has seen a significant cyclical downturn in our industry, outperformed most of its peers and the AIM Oil & Gas Index. This transaction represents a record share price for Eland and crystallises Eland’s stated goal to maximise shareholder value,” he adedd.

Also commenting on the acquisition Russell Harvey, Chairman of Eland, said “We are pleased to announce this recommended Acquisition by Seplat. Eland’s management team has done an excellent job executing our strategy. We have demonstrated a strong track record of operational delivery and value creation in Nigeria from our high-quality assets.

“This offer allows Eland Shareholders to benefit from an accelerated and enhanced realisation of this value through a cash offer at a significant premium to the current market value. In addition, the business will benefit from the opportunity to become part of a more significant player in the Nigerian oil and gas market. For these reasons, the Eland Board unanimously intends to recommend the offer to Eland shareholders.”

Also commenting on the acquisition, Bryant Orjiako, Chairman of Seplat said “Since Seplat acquired its first blocks and commenced production in 2010, we have increased oil and gas production and grown reserves in each year of operation, delivering significant growth and value for our shareholders. “We firmly believe that Eland is a complementary fit with Seplat and that there will be enhanced scale and a wider range of capabilities made available to the enlarged group through the combination. This acquisition signals the next step in our journey that will underpin Seplat’s ambition to be the leading independent E&P in Nigeria.”

Austin Avuru, CEO of Seplat, said, “We are pleased to have reached an agreement to acquire Eland and its portfolio of assets that will enhance our existing operations. Eland is an excellent fit with Seplat and the combination should achieve for us growth and increased profitability, creating value for our shareholders, employees and other stakeholders while offering an attractive upfront premium to Eland Shareholders.

“The Acquisition, made possible by our robust operational platform and headroom in our capital structure, is in line with a key part of our established strategy which is to pursue opportunities in the onshore and offshore areas of Nigeria that offer near term production with cash flow and reserves potential. The Acquisition reinforces Seplat’s status as one of Nigeria’s leading indigenous, independent E&PS and will create a Nigerian E&P champion with the footprint and technical capabilities to further grow and consolidate in Nigeria.”