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San Leon Energy's acquisition shows commitment to shale gas potential in Poland, says FoxDavies
The acquisition of Realm Energy International Corporation demonstrates San Leon Energy's (LON:SLE) commitment to the shale gas potential in Poland, reckons broker FoxDavies.
Through the merger, energy firm San Leon will increase its Poland Baltic acreage by about 60 percent taking the total on a net basis to around 2,400km (593,000 acres), said analyst Shahin Amini in a note.
FoxDavies says it retains its 'buy' recommendation for the stock targeting 50 pence a share (current price: 18.25 pence).
The cash and share deal announced last week values Realm's more than 107 million shares at about $1.30 each, or just over $139 million. Both boards have approved the transaction, which is expected to close in November.
The deal means San Leon will acquire four exploration licences across Poland and Germany, ten licence applications in Spain and 10 licence applications in France.
The transaction also comprises 2.4 million gross acres under application in France and less than 2.0 million gross acres under application in Spain and around C$24 million of cash currently on Realm's balance sheet.
Analyst Amini says FoxDavies' valuation of San Leon’s existing Baltic acreage amounted to around US$550 per acre. With the merger, including all of Realm’s acreage in Poland and Germany, the valuation is US$351 per acre.
Both valuations appear high considering that, according to BNK Petroleum, acreage costs for non-proven areas in North America are in the range of US$25 to US$500 per acre, pointed out Amini.
It appears that the merger with Realm Energy has set a new high benchmark for acreage valuation in Poland. However, we have confidence in the company’s technical and commercial capabilities and are positive on the rationale for this transaction, he added.
He concluded: "The strategic significance of the increased landholding and potential upside, if commercial production can be demonstrated, would justify this deal."



















