Why San Leon Energy shares rocketed by a quarter today

The Motley Fool
Oil rig
Oil rig

Shares in San Leon Energy(LSE: SLE) are surging today after the company confirmed speculation that it's in discussions with a party interested in making an offer for it.


The company was forced to revealed that it's in takeover discussions after media reports emerged over the weekend claiming that bidders were circling the company. According to press speculation, a bid in the region of £50m for the company is likely to materialise in the next week. Sources said that at least one potential buyer is circling the business, with management already engaged in preliminary talks.

What's your offer?

It's likely any bid for the company would have to be above the 80p a share paid by investors at the company's last £29m capital raise earlier this summer. City chatter suggests a bidder would have to go above £1 a share to stand a chance of success.

Unfortunately, today's press release from San Leon didn't shed much more light on any potential offer. The release only noted that "board of San Leon today confirms that it has received an approach from a possible offeror, which may or may not lead to an offer being made for San Leon." The release also included the standard takeover disclosure statement, "there can be no certainty that an offer will be made or as to the terms on which any offer might be made."

Will a deal materialise?

2016 has been a transformational year for San Leon. The company has gone from an early stage oil explorer to a fully fledged production company after taking on an active role as a partner in the Nigerian OML 18 asset. Further, San Leon struck gas at its Rawicz 12 well in south-western Poland earlier this year, and management estimates the revenues from this find alone could be more than $150m.

So the mysterious bidder could be looking to swoop on San Leon and take advantage of the firm's depressed share price, gobbling up the Polish asset, the Nigerian interests and the rest of the company's portfolio of exploration assets around the world at a rock-bottom price.

If no deal emerges, there's no reason why San Leon can't survive as an independent entity and continue to develop the assets itself. This scenario may even result in better long-term results for investors. After raising £170m from investors to fund its Nigerian production agreement, San Leon's management has stated the company will return 50% of free cash flow from Nigeria to shareholders via either share buybacks or dividends for five years. This shows management is actually committed to achieving the best returns for investors.

Still, as of yet, the market hasn't rewarded San Leon with the valuation it deserves for this commitment. It looks as if an opportunistic bidder is seeking to take advantage of this and swoop on San Leon before the firm's shares re-rate higher.

Small-cap bargain?

If San Leon isn't for you, there are many other small-cap opportunities out there for your money. For example, the Motley Fool's top analysts have recently uncovered this hidden gem, which they've labelled one of the market's "top small-caps".

Our analysts believe that this company's potential upside could be as great as 50%.

To uncover this opportunity for yourself all you have to do is download the Fool's no obligation, free top small-cap report today. Hurry, this opportunity won't be around for long.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.