LONDON (Alliance News) - San Leon Energy PLC on Friday unveiled plans to enter the Nigerian onshore oil and gas production market, in a USD180.0 million transaction designed to generate the cash flows required to pay dividends to shareholders.
The AIM-listed company revealed a deal that will see it acquire Canada's Mart Resources Inc, an exploration and production company, for USD62.6 million.
The result of the acquisition, together with a restructuring, is that San Leon will secure a 9.72% indirect economic interest in the OML 18 block, onshore Nigeria. San Leon will have no other assets or liabilities resulting from the transaction outside of the OML 18 block.
Martwestern Energy Ltd, a Nigerian holding company which is a major shareholder in the operator of OML 18, is owned by Mart Resources, together with Midwestern Oil & Gas Ltd and SunTrust Oil Co Ltd, both Nigerian companies.
In a restructuring deal between Midwestern and San Leon, which will include the acquisition of SunTrust's 20% stake in Martwestern, Midwestern will assume the assets and liabilities of Mart not connected to OML 18.
The remainder of the USD180 million transaction cost is accounted for by the SunTrust acquisition and restructuring, as well as transaction fees. San Leon said it will fund the costs of the deal by issuing debt instruments, and that its existing shareholders will not be diluted, thanks to the debt-based funding of the deal.
Gross OML 18 block production was 31,600 barrels of oil per day in September 2015, with a production ramp-up plan proceeding. A significant portion of the production is covered by a hedge at USD95.0 per barrel until December 2017, the company said.
San Leon Executive Chairman Oisin Fanning said the deal takes advantage of currently depressed low oil prices, enabling the company to buy into production with "significant yet low-risk upside" and "attractive hedges already in place".
"The proposed transaction will provide San Leon with substantial production and cash flow not only from both production but also from service provision in a world-class asset, and is also expected to provide a platform for further transactions," Fanning said.
"We firmly believe this will be transformational for the company, and a large step towards San Leon becoming a dividend-paying company," Fanning added.
The deal is expected to close in March, and would be classed as a reverse takeover under stock exchange rules, resulting in the suspension of the shares from trading on AIM Friday.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
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San Leon (SLE)