Malcy's Blog8 Jul 2022 14:09
After a long wait this truly is a transformational move for SLE and will indeed ‘consolidate and simplify the Group’ who will now be exposed to a 44.1% initial indirect economic interest and will own 50% of ELI.The CPR gives them 2P 323m barrels, an NPV of $1.1bn.
As CEO Oisin Fanning said to me this morning, ‘now the real work begins’ on SLE which has massively increased its assets and with current economics, in my view quadrupled the value of the company. I would suggest that this serious rerating will put the new combined group up there with the best in the industry.
On an operating basis the company are going to physically gain much more crude oil in two ways, the pipeline is very important and scheduled to be ready maybe by the year end thus almost totally minimising the ‘leakages’ which presently add up to some 40%. In the meantime the company has started barging operations which will also significantly remove the leakage.
Perhaps more importantly for shareholders, who have been waiting patiently during the long suspension, they are going to get a right to the substantial cash flows inherent in this deal via an issue of Preference shares. As I see it this ensures that it does as it says on the tin by giving these shareholders a preferential right to the first $40m of any future dividends paid by San Leon.
Inevitably there will still be a number of questions that need to be answered such as when the shares will return from suspension, I would expect pretty soon, when Government approval will come through, hopefully by September/October.
I have been a strong supporter of San Leon in recent years as I believe that when they stated that they would return 50% of free cash to shareholders that amount of money could mean that the company will yield over 20% on an ongoing basis. There are still things to clear up such as free float and timings of some parts of the deal but as the shares return and the markets gets it the share price should rise significantly.
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