Tullow Oil has agreed to merge with Capricorn Energy, through an all-share deal that will create an Africa-focused but London-listed oil and gas group with a market value of more than £1.4 billion ($1.79 billion).

Based on the agreement, Capricorn shareholders will receive 3.8068 new Tullow shares for each Capricorn share held, granting them a 47 per cent stake in the combined group. Similarly, Tullow’s shareholders will have 53 per cent stake of the combined group.

Both companies said they believe the deal would create a “stronger, more resilient” African energy company that would be able to deliver sustainable shareholder returns. The combined group will have 1billion barrels of oil projects spread across countries including Ghana, Egypt, Gabon and Côte d’Ivoire and Latin America.

“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.”
Rahul Dhir

The combined group which is led by Tullow’s Chief Executive Rahul Dhir, will initially set a base dividend of $60 million a year. The companies expect annual savings of $50 million by the second year after the deal’s completion.

Tullow’s Future with the Merger

The deal marks a major comeback for Tullow, whose future had been in doubt until it struck a critical $1.8 billion refinancing deal last year. It also answers questions over the future strategy of Edinburgh-based Capricorn, previously known as Cairn Energy, which was stymied for years by a tax dispute with India that finally reached a settlement in 2021.

While major oil and companies are exiting Africa, Tullow’s Rahul Dhir deems this period of flux as an opportunity for the company, hence increasing investments in its assets across the region.

Dhir said: “Tullow takes advantage of those opportunities as they appear, and we would not be able to do this without the hard work that we have undertaken over the past two years to address the issues our company faced.”

“Now, we have the clear potential to grow our business both organically and inorganically and I strongly believe that Tullow can and will deliver substantial value to all our stakeholders in the coming years. I would like to finish by thanking our investors, our host nations and host communities and our staff for their support over the past year.”
Rahul Dhir

It was only recently that Tullow faced significant financial hurdles, raising questions over the company’s future until last year when it raised a bond worth $1.8 billion to repay debts. It had warned that failure to secure that refinancing would result in a “significant risk” of insolvency.

Tullow endured a number of tumultuous years after it was forced to slash production forecasts and parted ways with its former chief executive Paul McDade at the end of 2019. It was subsequently forced to embark on a swingeing cost-cutting and disposals programme. Under Dhir, who joined the company in July 2020, Tullow refocused on its core assets in West Africa.

Shares in Tullow rose 1.83 per cent in London in early trading on Wednesday, June 1, 2022, following the announcement of the deal. Capricorn was up 1.06 per cent. Analysts at Investec said the combination will “ultimately provide a significant deleveraging event for Tullow given Capricorn’s significant cash balance”.