Seplat buys Eland Oil & Gas in £382mn deal: Why this analyst thinks it’s a positive move for Seplat

Seplat Petroleum Development Company made headlines with its announcement of a £382 million cash acquisition of Eland Oil & Gas. The move signifies a strategic decision by Seplat to expand its presence in the Nigerian oil industry and enhance its production capacity. Analysts believe that this acquisition is a positive step for Seplat, despite some initial concerns about the size of the deal. Janet Ogunkoya, a Research Analyst at ARM, shared insights on the acquisition in a recent interview on CNBC Africa. The acquisition, which is expected to be finalized by the end of the year pending shareholder approval, has already triggered significant reactions in the stock prices of both companies. While Seplat's stock remained stable on the Nigerian Stock Exchange, Eland experienced a surge on the London Stock Exchange following the announcement. The acquisition is anticipated to bring substantial benefits to Seplat in terms of revenue growth and production capacity. Seplat's solid financial position, with cash reserves of $427 million and a revolving credit facility of $300 million, provides the necessary funding for the acquisition. Despite potential short-term cash flow constraints, analysts believe that the long-term benefits of the acquisition will outweigh any immediate financial pressures. Eland, with its clean balance sheets and manageable leverage, is seen as a suitable fit for Seplat's growth strategy. The acquisition is expected to boost Seplat's production levels significantly, with projections indicating a potential increase to 50,000 barrels per day next year. This strategic move positions Seplat as a key player in the industry, with total reserves reaching over 600 million barrels. The acquisition also aligns with Seplat's future gas projects, which are set to further strengthen its gas capacity by 2021. While there are some uncertainties regarding potential challenges post-acquisition, analysts remain optimistic about the long-term prospects for Seplat. The acquisition reflects the growing capacity of indigenous players in the Nigerian oil industry and sets the stage for Seplat to pursue larger deals in the future. Overall, the acquisition of Eland Oil & Gas represents a significant milestone for Seplat and underscores its commitment to strategic growth and expansion in the energy sector.