Tullow merger target Capricorn weighs up alternative bidders
Capricorn Energy (Capricorn) has confirmed it is holding talks with other bidders, following investor concerns over its proposed all-share merger with Tullow Oil (Tullow).
The oil and gas company’s board has pushed for the proposed all-share merger with Tullow Oil (Tullow) to go through, despite criticism from investors.
Palliser Capital, which owns more than five per cent of Capricorn, criticised the deal last month – arguing that the proposals lacked strategic benefits and would jeopardise its ESG plans.
Capricorn’s chief executive Simon Thomson has confirmed the company is exploring alternative options, and is engaging with parties with counter proposals.
He said: “The company is exploring a number of expressions of interest relating to alternative transactions, and is engaging with those parties expressing interest to evaluate potential outcomes.”
However, the board still believed the Tullow merger was in the company’s best interests.
Thomson explained: “The board continues to believe that the proposed merger with Tullow can deliver significant long-term value for shareholders through creating a leading, Africa-focused energy company. The board is also mindful of the impact of external factors and market conditions and is, as always, assessing all options to maximise value for shareholders.”
Full documentation for the proposed deal is expected to be issued in the fourth quarter of this year, ahead of a shareholder meeting when the deal will be assessed.
Tullow reached a deal with Capricorn to take over its competitor in an all-stock deal worth £656.9m – combining the two UK-based and Africa-focused energy companies.
If approved by shareholders, the agreement would lead to the creation of an Africa-focused energy firm with a market value of more than £1.4bn.
As part of the proposed acquisition, Capricorn shareholders would receive 3.8068 Tullow shares for each share they own and have a 47 per cent stake in the merged group, which will be headed by Tullow’s Chief Executive Rahul Dhir.
The combined entity would own 1bn barrels of resources across Africa, and would produce around 100,000 barrels of oil equivalent per day.
City PM understands Tullow is still committed to the takeover and believes it offers the best upside for customers.
Meanwhile, Capricorn has returned $500m to shareholders this year after it received a $1.06bn tax refund from its operations in India.
The oil and gas company has also posted robust production figures from its Egyptian operations, following its entry into the market last year.
In its half-year results, Capricorn revealed its working interest production in Egypt totalled 35,500 barrels of oil equivalent per day.
The company’s Egyptian operations are producing 14,600 barrels of oil per day, up six per cent from its acquisition average, while gas was down seven per cent, with 17m standard cubic feet being produced.
The company is focusing on liquids production in the prevailing oil price environment, which makes up currently 41 per cent of production
As for its overall balance sheet, the group’s net cash was $631m – for the six months of trading – consisting of $809m cash and $178m debt.
This includes the $77m earned from the sale of its UK North Sea producing assets.
Its net cash position was $130m below estimates from analyst group Jefferies.
The company’s year forecast net capital expenditure has climbed to $175-195m, while revised full-year production guidance has dropped from 37-43,000 barrels of oil equivalent per day to 33-36,000.