Vanguard Markets | Monday, February 09, 2015 | Issue 028
AGAINST THE GRAIN
Seplat’s counterintuitive acquisitions win market applause EN months after its historic initial public offering (IPO), Seplat Petroleum has given its shareholders cause to cheer amidst the gloom brought on by the sharp decline in oil prices. In light of depressed crude prices, companies in the sector have been discouraged by sceptical shareholders and unconvinced bankers from pursuing M&A activities. Seplat has chosen to take the elevator going in the opposite direction. It has doubled down on its bets about oil prices’ prospects. The company announced on Thursday that it had completed the acquisition of two oil blocks, OML53 and OML55, from Chevron and Belema Oil respectively. The timing is not opportunistic. Seplat has worked assiduously behind the scenes for many months, often in contentious, litigious circumstances, to seal these deals. Its perseverance has paid off. The blocks are located in the shallow waters of the Niger Delta. Under the disclosed terms of the deal, Seplat will pay $259.4m for a 40 per cent stake in OML53 and $132.2mn for a 22.5% interest in OML55. Seplat’s stake in OML55 was indirectly acquired though its purchase of a 56.25 per cent stake in Belema Oil, which has bought a 40 per cent interest in the block from Chevron.
T
Seplat drill technicians working on a rig
Source: Thomson Reuters
Ildar Davletshin and Temilade Esho, oil and gas sector analysts at Re-
naissance Capital, view the transactions as ‘a significant and positive devel-
opment for Seplat.’ In their preliminary assessment of the deals, they note three
key takeaways. One, OML53 and OML55 will boost Seplat’s reserves by about 65 per cent. Two, the blocks should enable the company to double oil production as soon as they reach capacity within four years. Three, they should help Seplat increase EBITDA within the range of 60-70 per cent by 2018, and add about 20 per cent to its net asset value. There is also a sense of relief that Seplat’s acquisition train is on the move again after false starts in 2014. In its report for the half year period ended June 30, 2014, it explained that its bids for OML 29 and OML24, which were put up for sale by Shell had been unsuccessful because it stuck to ‘price discipline’ and did not put forward ‘the highest price offer’. The news of its latest acquisitions comes on the back of announcements in January that it successfully refinanced its existing debt facilities and had commenced talks with Afren, the FTSE 250 listed independent oil exploration and production company. The oil company received $1 billion from two consortia of banks, one local, and the other foreign. The funds were to be used to repay $552 million in existing debt, with the balance held in reserve to seize advantage of new business opportunities. ;
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