San Leon Energy agrees acquisition terms with Island Oil & Gas

25 February 2010

San Leon Energy, the Irish exploration and production group has finally agreed the terms of a deal to buy fellow AIM listed company Island Oil & Gas.

San Leon made its intentions clear over a potential deal back in October last year and the finer details of the acquisition have not really changed since then. Under a scheme of arrangement between the two sides, Island shareholders will receive 1 new San Leon share for every 2.3 Island shares they hold in a move that values the company at £13.74 million.

The price is a premium of around 65% to Island’s 6.125 pence per share closing price yesterday and a premium of 32.6% to the 7.625p per share closing price back in October, when the offer period first started.

[i.e. we shall get 10 p per share if we sell them]

San Leon wants to combine the two companies with a view to building a strong Irish-based oil and gas exploration and development business. It already has extensive knowledge of some of Island's assets: its two Moroccan onshore assets (the Tarfaya area and Zag basin), its recently acquired Moroccan offshore assets at Sidi Moussa and Foum Draa and the Netherlands offshore Amstel Field, in which both San Leon and Island have a royalty interest.

The company also has good working knowledge of the majority of Island's Celtic Sea and Atlantic Margin assets and is expected to undertake a strategic review of Island's Albanian assets following the combination.

In particular, San Leon is thought to be eyeing the opportunities presented by declining offshore gas production from the Kinsale field in the Celtic Sea. Island holds stakes in the Old Head of Kinsale (Part Block 49/23) and Schull Field (Block 57/2) and these are expected to become increasingly viable as they head towards production.

Oisín Fanning, the chairman of San Leon, said: “San Leon's acquisition of Island will create the leading Irish-based oil and gas exploration and development business. The unparalleled strategic fit of the two companies' complementary assets and resources is particularly compelling.”

extract from smallcapnews

Report for January 2010

The markets have been sinking since the new year, partly thanks to the US assault on American bankers' bonuses. In January (and the trends are even worse already in February) the FTSE100 fell 5% and our portfolio fell 3%, with only Severn Trent showing a small gain (apart from our corporate bonds).

Because we hold so much in cash, our losses in the Unit Value were limited to 2%. However, with prices low, we should be investing.

Corporate bond launch [Guardian]

The PIC has held corporate bonds in our portfolio for a couple of years. Now the London Stock Exchange is making it even easier to purchase them.

"Savers looking for a better return on their money will, for the first time, be able to invest in individual corporate bonds issued by major companies such as Tesco and BT, following today's launch of a trading service for private investors.

The London Stock Exchange (LSE) has unveiled a "retail bond market" allowing private investors with modest sums to buy and sell bonds paying about 5%-8%.

Corporate bonds are a form of debt issued by companies to raise money, which pay a fixed rate of interest for a set period. They are generally considered less risky than shares, but more so than putting your cash in a savings account. The main risk for the buyer of an individual corporate bond is that the issuing company might get into financial difficulty or even go bust.

Traditionally, this type of investment has only really been an option for big institutional investors because the minimum amount needed to trade was typically £50,000 or more.

But now, at a time when savings rates are at an all-time low and many people are nervous about the stockmarket, individual investors with as little as £1,000 to invest – and, in one case, just £100 – will be able to access the corporate bond market.

Initially, 10 bonds are available for trading issued by companies including Tesco, BT, National Grid, GlaxoSmithKline, Morgan Stanley, GE Capital and Enterprise Inns. There is also a bond issued by Royal Bank of Scotland specifically for the new service, which matures in February 2020 and pays 5.1%. This has a minimum investment of £100.

Typically, investors will be able to trade the bonds in £1,000 chunks in the same way they would buy and sell shares.

A spokesman for the LSE said the bond market had been launched "in response to strong private investor demand for greater access to fixed income".

Many savings accounts are currently offering very poor returns. David Buik at City broker BGC Partners said: "3% is about as good as the individual will get, whereas with a company such as Tesco the interest on a seven-year bond would be closer to 5%."

But he added: "There is obviously a credit risk which investors have to take into account. Potential investors also need to be mindful of the fact that we may well be at the end of a low interest rate cycle, so they need to be comfortable in their own mind that, say, 5% is a decent rate and that they are not too worried about holding on to bonds for a lengthy period of time."

Speaking at the launch, Paul Killik, senior partner at stockbroker Killik and Co, said there had been growing demand from its private investor customers to access the corporate bond market, but until now a centralised, transparent order book for trading in "individual retail friendly-sized bonds" had not existed."