Tullow Oil to buy Capricorn to create $1.9 billion company

(Bloomberg) — Tullow Oil Plc agreed to acquire Capricorn Energy Plc in an all-share deal combining resources in Africa and opening up opportunities for expansion across the continent.

Tullow Chief Executive Officer Rahul Dhir will lead the merged group, the companies said Wednesday. He already has a close association with Capricorn -- formerly known as Cairn Energy -- having made his name 15 years ago with the multibillion-dollar initial public offering of the firm’s Indian business.

Since arriving at Tullow in 2020, Dhir has sought to turn the London-based company around after a disastrous few years that saw most of the senior leadership resign. He has imposed fierce cost discipline, tackled liquidity concerns and slashed risky exploration, reflecting the changing circumstances of the industry.

Tullow and Capricorn combined will have a market capitalization of about £1.5 billion ($1.9 billion). They’ll together own 1 billion barrels of resources across Africa and almost 100,000 barrels a day of production, Dhir said on a conference call. Output is expected to reach 120,000 barrels a day by 2025.

“There’s been no other business like this with the singular focus on Africa, with the scale,” Dhir said. “There’s a lot that we can do to deliver organic growth in the near term.”

Capricorn has assets in Mauritania on Africa’s Atlantic coast, and in Egypt’s Western Desert. Tullow has projects in West and East Africa. The combined entity will be focused on “infrastructure-led exploration,” Dhir said. It will have a base annual dividend of $60 million a year and the potential to return more as appropriate, according to the companies.

The “deal rationale is likely in part driven by addressing the pair’s long-term growth risks and weaknesses,” Will Hares, a global energy analyst for Bloomberg Intelligence, said in a note. “Capricorn’s $1.3 billion net cash balance will help ease Tullow’s long-standing debt struggles, with the latter enhancing Capricorn’s exposure to oil-price upside.”

Tullow rose as much as 2.7% in London trading. The stock was up 2.2% at 11:12 a.m. local time, taking its gain this year to about 20% amid crude’s rebound to more than $100 a barrel. Capricorn jumped 3.6%.

Tullow shareholders will hold 53% of the combined company and Capricorn shareholders the remainder. Capricorn has suspended its previously announced $200 million share buyback, according to a statement.