SDX Energy’s plan to buy a “significant” group of assets in Egypt from BP has ended without a deal, it said on October 18. The company said this decision had been reached by mutual agreement. It has resumed trading in London and Toronto, it added.
The dream is not wholly over, though. The junior said it continued to hunt for “inorganic growth opportunities across its areas of operations in North Africa”.
On September 20, SDX confirmed press speculation that it was in talks with BP. Such was the size of a deal that it would constitute a reverse takeover – probably because the acquisition would involve the issue of substantial amounts of equity – and trading would be halted.
While SDX did not provide details on what the asset sale was to cover, one possibility was BP’s stake in the Gulf of Suez Oil Co. (GUPCO). This produces around 70,000 bpd of oil and 400 mmcf (11.3 mcm) per day of gas. In March, Reuters put the value of this stake at around US$500 million.
Given that SDX’s first half revenues reached US$24.4 million, with income of around US$1 million, such a deal would have wholly changed the company’s composition. There had been a suggestion that it might mirror a deal in the North Sea, in which BP agreed to sell assets to Serica Energy, worth US$390 million, as an up-front payment of US$17 million. The difference was to come from committed cash flows and various contingency payments.
SDX is likely to continue its hunt for “inorganic growth” in Egypt. At the same time the company was talking things over with BP, Soco International struck a deal to buy Merlon Petroleum El Fayum for US$215 million, to be paid in a combination of cash and shares.
The benefit of buying assets from deep-pocketed majors is that the structure can be more innovative, providing some form of vendor financing, for instance. Buying a small company in its entirety may be more straightforward in side stepping such hoops, but also requires much more cash to be put on the table.