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MDLNF Acquisition - Accretive And Enhances Bargaining Power In Argentina

|Includes: Madalena Energy Inc (MDLNF)

The deal announced today is fairly accretive and puts the pro-forma company on something like 5x FCF before expansion capex by my back of envelope. People are upset about the stock portion of the consideration, but that's an emotional reaction because the CEO has said he will not issue shares. However, because the deal itself is accretive, the share issuance is an artifact. That's what doing an accretive deal means. The better question is - why are they buying a traditional asset in Argentina and a management team? I think the answer goes back to negotiating power to get their JV deal. Only by having the ability to walk from the negotiation table can they effectively obtain terms from a major oil company. The ability to operate and drill in country enhances that position.

Disclosure: I am long MDLNF.