Tullow and Capricorn agree merger
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.