Capricorn Energy and Tullow Oil merger: Scotland to lose key oil company headquarters and jobs

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EDINBURGH-based Capricorn Energy has entered into an “equals-to-equals merger” with Tullow Oil, involving job losses, with the enlarged group’s headquarters in London.

The deal, to create ‘a leading, London-listed African energy company’, will see Simon Thomson step down as chief executive of Capricorn, which had a stock market value of around £635m last night after a 2.3p rise in its shares to 200.8p.

Mr Thomson spent 11 years as chief executive of Capricorn and its predecessor Cairn Energy, which was founded by former Scotland rugby international Sir Bill Gammell in the late 1980s.

Asked about the expanded group’s headquarters in London, given that Capricorn and its predecessor Cairn Energy had been based in Scotland since the late 1980s, Mr Thomson replied: ‘In terms of heritage, I think if you ask to Bill, he would say the same thing – it’s about creating value for shareholders.

“Our view is that this combination has greater value creation potential than the individual. It’s all about creating value.

Mr. Thomson will chair the “integration steering committee” set up to help with the merger of the two companies.

He will leave the expanded group once the integration is complete, Capricorn noted.

Rahul Dhir, chief executive of London-based Tullow, will hold the same position in the enlarged group after the merger. And Tullow chairman Phuthuma Nhleko will chair the enlarged oil and gas company.

Following the merger, Capricorn shareholders will own approximately 47% of the combined group and Tullow investors approximately 53%.

Mr Thomson acknowledged there would be layoffs among Capricorn’s 220 employees and at Tullow, as part of the $50 million in annual savings envisaged from the deal.

He said there would be layoffs “at both companies…because there is a duplication of roles.”

However, he added: “Apart from duplicating and fairly handling this, we will be able to provide opportunities for people. »

Asked about Capricorn’s future vision for the North Sea, given that the larger group will focus on Africa, Mr Thomson replied: “We obviously have an interesting position there. [in the North Sea] in terms of the southern gas basin – the things we’re looking at.

Referring to the Diadem well on which drilling is due to begin this month, as part of a 50-50 program between Capricorn and Shell, Mr Thomson noted: “We are about to drill a well in the middle of the North Sea”.

In the context of the North Sea, he added: “There are interesting opportunities. We’ll see how that plays out.

“The focus will be on Africa. Each company has additional exploration positions outside of Africa. We will have to solve them and see how it works.

Mr Thomson stressed that, while London would be the headquarters of the enlarged group, a presence in Edinburgh would be maintained.

He added: “There will always be a strong presence from that point of view.”

Tullow and Capricorn said of the enlarged group’s head office plan: “It is expected that after completion of the merger the combined group’s head office will be at Tullow’s existing offices in London and it is expected that the combined group will also retain premises in Edinburgh and through the application of a flexible working policy allow employees to work from both premises.

“The combined group will respect any obligation to inform and consult employees and their representatives on these intentions.”

Under terms of the deal, which is expected to be finalized in the fourth quarter of this year, Capricorn investors will receive 3.8068 new Tullow shares for each share they hold in the Edinburgh-based company.

Mr Thomson said an “ideal oil and gas company” would be “one that had scale…that had focus, that had growth potential” and had financial certainty to be able to deliver consistent returns to shareholders. , as he explained. rationale for the merger.

He said the expanded oil and gas group would have around one billion barrels of resources, and noted that its production would be around 100,000 barrels of oil equivalent per day (boepd), from Africa, reporting its presence in Ghana, Egypt, Gabon and Ivory Coast. of ivory.

Capricorn’s managing director highlighted his company’s existing presence in Egypt.

And he signaled the potential to increase the expanded group’s annual production over the next few years from around 100,000 to around 120,000 boepd “just on the base case.”

Mr. Thomson noted that the expanded group intends to distribute a minimum dividend of $60 million per year, while noting the potential for additional shareholder awards.

He said it had been a “fairly easy and fairly short conversation” with Tullow Oil, whom Capricorn knew well, about the merger.

Mr. Thomson added, “The combination of our businesses will create a leading African energy company with significant scale and growth opportunities. Our two companies share experience and an ongoing vision for responsible energy production to support the economic and social development of our host communities. This combination will allow both companies to accelerate investment in new opportunities across the continent, while maintaining a resilient balance sheet and delivering attractive returns to shareholders.

Outlining the rationale for the deal, the companies said: “Boards of Tullow and Capricorn believe the combination has a compelling strategic, operational and financial rationale, with the ability to deliver substantial shareholder benefits, host countries and other stakeholders.

“The combination represents a unique opportunity to create a leading, London-listed African energy company with the financial flexibility and human resource capacity to access and accelerate near-term organic growth, add new reserves and resources in a profitable, generate significant future returns. for shareholders and pursue consolidation.

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