The BP deal is dead but another smaller acquisition will be coming soon.
Why do I say that?
By the year end PW will be faced with a nice problem to have, what to do with all the revenue being generated by SDX.
Producing in excess of 8,000 boepd SDX will have enough revenue to fund the 2019 drilling campaign and still have too much cash left over.
As they have no intention of paying a dividend, what do they do with it?
It would be easy to say bank it but that could create problems.
If the share price stays at these low levels we have the ridiculous situation where in 2019 SDX could generate revenue that is over 50% of the current market cap.
(Current market cap £114m or $148m – currently generating $4m a month or $48m a year and that could double in 2019 to circa $96m)
I think PW said the other night that they have $25m in cash now and around that level has been maintained for some time now.
With the assets that SDX have, the revenue they are generating and the cash in the bank, they are in danger of becoming a takeover target themselves.
Add to that a cash balance in the bank that begins to grow quite rapidly and the attractiveness to a prospective buyer increases. All assets have a value but cash is king.
Just as PW is looking around at smaller companies to acquire, some of the larger players may also be looking at SDX and its progress.
PW has joked on a few occasions that SDX are the Exxon Mobil of Morocco and to anyone seeing the potential market there and the large margins, what better way to move into the market than by buying the largest producer.
If I am right then PW will not want the cash balance to grow too high and that is why an acquisition is almost inevitable.