Tullow Oil PLC (LSE:TLW) and Capricorn Energy PLC (LSE:CNE, OTC:CRNZF) have agreed to merge to create “a leading African energy company with a material and diversified asset base and a portfolio of investment opportunities delivering visible production growth”.
Capricorn shareholders will receive 3.8068 new Tullow shares in the deal, which will see them together own some 47% of the new company whilst Tullow’s owners will hold the other 53%.
It will comprise low-cost producing assets and a deep portfolio of incremental high return investment opportunities in Ghana, Egypt, Gabon and Côte d'Ivoire, the companies said in a statement.
Specifically, it will have Tullow’s major resource development project in Kenya along with Capricorn's Egypt portfolio, which has opportunities to develop self-funded production growth via infill drilling and low-cost exploration. Further afield, upside remains through exploration assets in Guyana and Mauritania.
Together, the new company will have some 96,000 barrels oil equivalent production per day from a base of reserves and resources measuring 343mln and 696mln barrels respectively.
Wednesday’s statement highlights some US$50mln of pre-tax net cash cost synergies resulting from the combination of the businesses.
It is expected to have US$1.8bn of liquidity. Cumulative pre-financing free cash flows are forecast at around US$2.4bn over the 2022-2025 period, based on a US$75 per barrel crude oil price, and it expects to deliver “rapid deleveraging” in the future.
Dividends will resume – presently Tullow has no distributable reserves and is therefore currently unable to pay dividends – as a capital restructuring will take place alongside the merger.
It is anticipated that a base annual dividend of US$60mln will be paid out per year.
Tullow chief executive Rahul Dhir will be chief executive of the combined company, whilst Capricorn chief financial officer will take the CFO role. Tullow chair Phuthuma Nhleko will be chairperson whilst the current Capricorn chair Nicoletta Giadrossi will be senior independent director.
Simon Thomson, Capricorn’s chief executive, will become chair of the integration steering committee to help with the integration of the two companies.
“The boards of Tullow and Capricorn believe the combination has compelling strategic, operational and financial rationale, with the ability to deliver substantial benefits to shareholders, host nations and other stakeholders,” the companies said in a joint statement.
“The combination represents a unique opportunity to create a leading African energy company, listed in London, with the financial flexibility and human resource capability to access and accelerate near-term organic growth, add new reserves and resources cost-effectively, generate significant future returns for shareholders, and pursue further consolidation.”