Energy Industry Consolidation Continues as Sea Dragon Energy Agrees to Merge with Madison PetroGas
By:
Tomas Ronolski - AllPennyStocks.com News
Wednesday, August 19, 2015
The price of oil sinking 60 percent since last summer, including 30 percent in the past two months, is putting the squeeze on energy plays of all sizes. Hercules Offshore and Samson Resources recently proved that a lionhearted name is not enough to fight off industry weakness, with Hercules announcing a prepackaged bankruptcy and Samson trying to restructure itself with bankruptcy looming. If oil stays cheap, what’s coming with respect to bankruptcies and bad bank loans is anyone’s guess, but expect troubles to escalate, as many companies can’t ride it out forever.
A wave of overdue industry consolidation is likely as peers try to weave themselves together to weather the storm and emerge stronger when crude finally does recover. There’s going to be mega-mergers like Royal Dutch Shell’s
(NYSE:RDS.A) $70 billion offer to buy BG Group earlier this year and plenty of small deals like Sea Dragon Energy
(TSX-Venture:SDX) on Wednesday saying that it is merging with Madison PetroGas.
London-based Sea Dragon is concentrating its efforts on its interest in three concessions in Egypt: NW Gemsa, a producing asset in the Eastern desert; South Ramadan, a development asset in the Gulf of Suez; and South Disouq, an exploration asset in the Nile Delta. Madison PetroGas, headquartered in Calgary, Canada, is engaged in exploration and development of oil and gas reserves in Africa and the Middle East. More succinctly, Madison has an interest in a producing onshore block in the West Gharib area of the Gulf of Suez in Egypt and an interest in a production sharing contract in the prolific Niger Delta Basin in Cameroon.
In the all-share deal, Sea Dragon is acquiring all the shares of Madison at a ratio of 16.7 SDX shares for each share of Madison. Sea Dragon will also do a 1-for-35 reverse split to trim the number of outstanding shares following the acquisition. When all is said and done, current Madison shareholders will own about 71 percent of the combined entity, which will be renamed SDX Energy Inc. Paul Welch, the current Sea Dragon CEO, will remain as President and CEO of SDX Energy and Olivier Serra will remain as CFO of the combined entity, which will be based in London, UK.
"I am very excited about the combination of these two companies. We have complimentary assets and business objectives and by combining, we significantly increase our ability to achieve our goals,” said Paul Welch in the press release disclosing the merger. He added, “The challenging market we are currently in means new strategies need to be employed to create value.”
As far as fundamentals, pro forma current oil production is 1,565 barrels of oil equivalent per day (boe/d). The new company has a near-term goal of average production of 1,810 boe/d and estimates a 2015 exit rate of 1,850 boe/d.
Proven and probable reserves base for the new company total of 5.1 million barrels of oil equivalent (MMboe) from operated and non-operated assets in Egypt, broken down into 2.2 MMboe of reserves at Meseda (100% oil) and approximately 2.9 MMboe at North West Gemsa (2.481 MMboe of oil and natural gas liquids and 0.487 MMboe of natural gas).
By joining forces, SDX Energy will have a stronger balance sheet to move forward with production and exploration. The new company has pro forma working capital of $16.5 million, enough to fund 2015 business plans, and solid cash flow, according to today’s statement.
Shares of SDX have slumped from a 2014 high of 9.5 cents all the way down to a low of 1.5 cents in recent weeks. Traders aren’t responding to the merger news, with shares flat at 2 cents in early Wednesday trading.
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