Edinburgh-based Capricorn Energy merging with Tullow Oil to create African-focused energy giant

Edinburgh-based Capricorn Energy is merging with Tullow Oil in a deal they say will create a “leading” London-listed African energy company able to accelerate investment across the continent.

Tullow Oil, which is based in the UK capital, and fellow exploration-and-production (E&P) firm Capricorn Energy, formerly known as Cairn Energy and founded by Sir Bill Gammell, have shaken hands on the recommended all-share combination.

The deal is believed to be worth £656.9 million and will see Capricorn chief executive Simon Thomson step down after almost 11 years and become chair of the integration steering committee.

The two firms believe that by joining forces they will have “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” as well as be focused on sustainability.

They also said the combined group will provide shareholders with a diversified pan-African upstream portfolio “underpinned by low-cost producing assets, with a deep portfolio of incremental high-return investment opportunities in Ghana, Egypt, Gabon and Côte d’Ivoire”.

Additionally, the two E&P firms, which have both been active in the North Sea, say that on completion of the deal, Capricorn shareholders will hold about 47 per cent of the combined group and Tullow’s the remainder.

The merged entity is also expected to have a “resilient” balance sheet, realise pre-tax net cash cost savings of $50m (£40m) a year, and have liquidity of $1.8 billion.

Capricorn Energy says its Egypt portfolio provides 'significant opportunity to deliver self-funded growth production'. Picture: Matthew Lloyd.

Mr Thomson said merging the firms brings about “significant” scale and growth opportunities. He added: “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 chief executive Rahul Dhir will take on the CEO role at the combined group, and 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.

Value

From left: Capricorn Energy's James Smith, who will retain the CFO title in the new group, and Simon Thomson, who is stepping down as CEO (file image). Picture: contributed.

"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."

Nicoletta Giadrossi, chair of Capricorn, will become senior independent director in the combined group; and Capricorn’s James Smith will retain the chief financial offer title. The headquarters are to be at Tullow's offices in London, but it will retain premises in Edinburgh.

SP Angel analyst David Mirzai said: “With access to capital and investment opportunities a key concern in the E&P sector, we are not surprised to see two of the UK’s most long-standing independent E&Ps combine.

"The merger is anticipated to create a leading African energy company with a material and diversified asset base and a portfolio of investment opportunities. Nonethless, both companies have undergone significant changes to their respective strategies in the last few years and we look for the new management team to convey how it will position itself with respect to the energy transition.”