San Leon Energy*** (LON:SLE – 43p) – $454 – 578mm (75 – 95p) – Potential Offer: Given the potential of OML 18 and the short time elapsed since its completion, we believe that the valuation that any potential bidder makes for the Company will have to reflect the core valuation which is in excess of 75p, given the recent rise in oil price. Based on today’s forward curve, the lower end of our valuation range increases from 68p to 75p, which should now be the guide price against which any offer is measured.
In Brief:
Volga Gas*** (LON:VGAS – 52p) – Uzan-4 Redrill Required
Canadian Overseas Petroleum (LON:COPL/XOP CN – 3.25p/C$0.13) – Mesurado Dry
Hurricane Energy (LON:HUR – 42p) – Lincoln Success, Proves Lancaster
News Items
San Leon Energy*** (LON:SLE – 43p) – $454 – 578mm (75 – 95p) – Potential Offer
The Company has today confirmed that it is received an offer for the outstanding share capital. Traditionally, bidders have had to offer a price which represents at least a 30% premium to the undisturbed share price, which implies ~55p a share.
In San Leon’s case, however, we believe that any successful bid will have to be greater than 75, given that: (i) a 30% premium to the undisturbed share price (55p) would be some 20% below our last published lower range valuation, which only consolidates core assets utilising then forward curve, which has strengthened sigificantly since; and (ii) the Company has just completed the acquisition of OML 18, and according to information available, all appears to be progressing as planned.
Given the potential of OML 18 and the short time elapsed since its completion, we believe that the valuation that any potential bidder makes for the Company will have to reflect the core valuation which is in excess of 75p, given the recent rise in oil price. Based on today’s forward curve, the lower end of our valuation range increases from 68p to 75p, which should now be the guide price against which any offer is measured.
In Brief
Volga Gas*** (LON:VGAS – 52p) – Uzan-4 Redrill Required: Today’s news regarding the abandonment of the current sidetrack (Uzan-4) is disappointing, but these things happen more often than is generally reported – but it is usual that at least the tools, if not the well bore, can be recovered. While $2mm is a significant quantity of money, the Company has sufficient resources to be able to cover the full cost, even if it is unable to recover the same from its current drilling contractor. While this is disappointing in the wider context, as it would have brought on additional production, we do not consider this news to have any net impact on our outlook for the Company, which was substantially upgraded recently following the news that the board has sanctioned the construction LPG unit in its VM field.
Canadian Overseas Petroleum (LON:COPL/XOP CN – 3.25p/C$0.13) – Mesurado Dry: today’s news will be disappointing for shareholders, but with only an 8% chance of commerciality predrill, which is distinctly different from the geological chance of success, which can be up to 25%, exploration remains a tough business. To our mind the Company successfully de-leveraged its exposure to Mesurado by retaining 17%, and the real company maker will be OPL 226 in Nigeria. To our mind this was always the key, and following today’s announcement, it is even more so.
Hurricane Energy (LON:HUR – 42p) – Lincoln Success, Proves Lancaster: Today’s news is a significant positive for the Company, is it not only potentially provides additional recoverable hydrocarbons to its existing Lancaster discovery, but in no small measure proves the technical merit of the Company’s approach. Furthermore, we believe that today’s announcement puts the Company on the target list, as the shares (at current levels) represent a significant discount to even a conservative Post-it note valuation measures. Watch this space.