Tullow and Capricorn agree merger Report

Deal Insight 13 June 2022

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Report summary

London-listed stalwarts Tullow Oil and Capricorn Energy have reached an all-share merger agreement. The deal will consolidate the companies' Africa focused businesses, combining Tullow's oil-weighted assets mainly in Ghana and Capricorn's gas-weighted portfolio in Egypt. The trend of consolidation has been gathering pace lately and we think there's clear logic to this tie-up. Tullow's position in Ghana is generating substantial cash in the current price environment and it has a material development opportunity in Kenya; but managing its high leverage ratio (over 100%) has been the primary focus. Capricorn brings a strong balance sheet with a net cash position of around US$700 million; but beyond shareholder returns it has struggled to deploy capital to growth opportunities and fixed gas pricing in Egypt has weighed on its market performance.

Executive summary
Transaction details
Upstream assets
- Tullow
  - Ghana
  - Cote d'Ivoire
  - Gabon
  - Kenya
  - Exploration assets
- Capricorn
  - Egypt
  - Mexico
  - Exploration assets
Deal analysis
- Shareholder approval
- Financial outlook
- Emissions
Upsides and risks
- Upsides
- Risks
Strategic rationale
- Combined balance sheet strength
- Scale and diversity
- Cultural fit
- What next?
Oil & gas pricing and assumptions