Capricorn Energy (LON: CNE) has ditched a tie-up with Tullow Oil (LON: TLW), instead unveiling a merger with NewMed Energy (TLV: NWMD).
The all-share deal creates an Israeli-Egypt focused gas producer, which will complete after paying a $620million special dividend to existing Capricorn shareholders.
Meanwhile shareholders of NewMed, controlled by Israel’s Delek Group, will own 89.7% of the new combined entity.
The merger will create one of the largest independent upstream companies listed in London, Capricorn said, with a portfolio of 11.8 trillion cubic feet of gas, including a 45% stake in the huge Leviathan field off Israel.
The timing comes as European countries seek alternative supplies to Russia.
NewMed will also become the first Israeli company to own assets off Egypt; a neighbouring state with a signed peace treaty and a population of 100 million people.
Shares in Capricorn are up 6% at time of writing to £2.54, while NewMed shares are down 15%.
Tullow has meanwhile taken a 2% tumble today, having plunged a total of 10% over the last five days.
What about Tullow?
Capricorn had been mooted to merge with Africa-focused Tullow Oil, but said earlier this month it was assessing its options amid mounting opposition from investors.
The firm said in its results statement that the implied value of the merger with Tullow is less than Capricorn’s current net asset value, and it had to pass a 75% shareholder threshold for the Tullow move.
Numerous investors like Palliser Capital came out in opposition, claiming it was one-sided in favour of Tullow.
Tullow has made no comment so far on the deal.
Substantial returns
On the merger with NewMed, Simon Thomson, CEO of Capricorn said: “This transaction delivers our shareholders a substantial capital return, together with an ongoing stake in a differentiated UK listed company, shaped for the future of the energy industry.
“The combined business will offer investors a gas business of scale, with the prospect of near-term growth, a dependable capital returns policy, and a compelling ESG narrative to support the energy-hungry markets of the Middle East, North Africa and Europe.”
NewMed CEO Yossi Abu added: “By combining with Capricorn we are creating a leading MENA gas and energy company, whilst significantly benefiting the shareholders of both companies. With 2P & 2C reserves and resources of approximately 11.8 TCF, predominantly gas from Leviathan, low-cost and highly cash generative production, the Combination creates a true regional energy champion.
“Secure, sustainable, and long-life cash flows will allow the Combination to offer a compelling mix of capital distributions to shareholders and growth potential. With Capricorn, we have a shared vision on a disciplined capital allocation framework and a strategy to potentially significantly increase our production while expanding to the LNG market with the aim of supplying Europe’s growing gas demand. The Combination will play a pivotal role in the energy transition, through organic brownfield cost effective developments while delivering attractive returns to our shareholders.
“On behalf of NewMed, I would like to thank all our stakeholders for their support for this highly attractive Combination. With our new partners at Capricorn, we are extremely excited about the future.”