San Leon Energy (LON:SLE) shares traded lower on Tuesday as investors came to terms with the dilution from the closing of a US$5.25mln share placing yesterday.
It was the first part of a two-tranche £31mln funding deal that accompanies the group’s latest acquisition, Alpay Enerji in Turkey, which puts the firm on the route to near-term production.
San Leon opted to buy into the low cost production and development projects as a means to generate valuable cash flows, having previously acquired Aurelian Oil & Gas earlier this year to bolster the group’s highly prospective shale interests in Poland.
The aim is to ramp up Alpay’s output to 10mln cubic feet of gas and 100 barrels of oil a day, generating monthly revenue in the order of US$3mln. According to chairman Oisin Fanning this can be achieved in the next year.
This then affords San Leon the time and financial wherewithal to develop its projects in Poland.
Indeed, specialist natural resources broker Macquarie claims that delivering cash flow from the Turkish assets will be a crucial hurdle. “Without a significant farm-in partner to Poland or Morocco assets in the near term those assets will continue to require investment to move forward,” the broker said in a note.
While the dilution created by the placing may have dismayed some shareholders, City firm Beaufort Securities last week highlighted the fact that the latest funding was oversubscribed, and said this reflects the attractive cash generation prospects created by the acquisition.
“We are optimistic about that the current acquisition and the progress at other assets are likely to result in good revenue visibility for the company in the near future,” Beaufort Securities said, as it repeated a ‘speculative buy’ recommendation on the stock after last week’s deal was announced.