Tullow Oil, Capricorn Energy in all-share merger

The boards of Edinburgh-based Capricorn Energy and London-based Tullow Oil have agreed to merge the companies in an all-share transaction.

Tullow said the proposed deal is a “merger of equals creating a leading African energy company” with a portfolio of investment opportunities in Ghana, Egypt, Gabon and Côte d’Ivoire.

It is intended the transaction will be implemented in a court-sanctioned scheme of arrangement where Tullow would acquire all of the issued and to be issued Capricorn shares.

Capricorn shareholders would receive 3.8068 new Tullow shares for each Capricorn share held, with Capricorn shareholders to own 47% and Tullow shareholders to own 53% of the combined company.

Reuters calculated the value of the proposed deal at roughly £657 million. The enlarged firm could have a stock market value of about £1.4 billion.

Tullow said the deal “delivers a combined group with robust cash generation and a resilient balance sheet, realising pre-tax net cash cost synergies of $50 million per annum.”

The merged group would have a new name that has yet to be announced.

Tullow chair Phuthuma Nhleko will become chair of the enlarged group, with Capricorn chair Nicoletta Giadrossi becoming senior independent director.

Tullow CEO Rahul Dhir would become CEO of the combined firm, with Capricorn CFO James Smith becoming CFO of the enlarged firm.

The board of the combined firm would include a further five non-executive directors, with two to be current Tullow non-executive directors and three to be current Capricorn non-executive directors.

After almost 11 years as CEO of Capricorn, Simon Thomson will step down as CEO and “will become chair of the integration steering committee to help with the integration of the two companies.”

It is intended that the headquarters of the combined group would be at Tullow’s existing offices in London but also that the enlarged firm would also retain premises in Edinburgh “and through the application of a flexible work policy enable employees to operate from both premises.”

Tullow added: “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 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.”

Capricorn CEO Thomson said: “The combination of our businesses will create a leading African energy company, with significant scale and opportunities for growth.

“Our two companies share a track record and continued vision of responsible energy production to support the economic and social development of our host communities.

“This combination will allow the two companies to accelerate investment in new opportunities across the continent, while retaining a resilient balance sheet and delivering attractive returns to shareholders.”

Tullow CEO Dhir said: “Our two companies are a perfect fit and this combination draws on the proud heritage of both Tullow and Capricorn to create a leading African energy company.

“With renewed focus and ambition, the combined group will have the financial flexibility to accelerate organic growth and pursue further opportunities as they arise, while creating value for shareholders and host countries alike.

“Together, we are committed to building a better future through responsible energy development.”

Capricorn also announced that following the announcement on the recommended all-share combination, it has suspended its previously announced $200 million share buyback programme other than in respect of the $25 million tranche announced on April 7, 2022.

AJ Bell investment director Russ Mould said: “A merger of equals between oil and gas firms Capricorn Energy and Tullow Oil reflects how far both have fallen since their glory days – when they were both propelled by exploration success to the ranks of the FTSE 100.

“Even as a combined entity they are a long way short of that today but given Tullow’s very existence seemed under threat at one stage and Capricorn was hamstrung by a dispute with India over tax, shareholders in both companies will hope the tie-up can lay the foundations for renewed growth.

“The deal takes place against the backdrop of a big fall in the oil price amid speculation OPEC might end its affiliation with Russia as a precursor to increasing production.”