Capricorn Energy head Simon Thomson has defended the company’s merger with Tullow Oil in an interview with the Sunday Times.
“This merger offers scale, co-ordination with our respective operations in Africa, potential growth and returns for our investors,” Thomson said. “There was no other deal that would give us focus and scale like this.”
A number of observers have expressed some reservations about the deal, saying the deal favours Tullow. Capricorn has a substantial cash pile, which will be welcomed by indebted Tullow.
In particular, Legal & General Investment Management (LGIM) expressed concerns on the merger. “In our capacity as a responsible investor, we have strong reservations about the proposed transaction,” LGIM said in a mid-June note.
It went on to say the deal would “increase the probability of the combined entity growing oil production”, potentially in higher cost basins. “We do not believe there are material synergies between the two companies, their strategies or their business models,” LGIM said.
LGIM is sceptical about the future of oil production, which is Tullow’s primary focus. Capricorn’s production, on the other hand, is around 85% gas.
The investor has a stake of just under 4% in Capricorn and around 1.7% in Tullow.
Thomson told the Sunday Times that the merger was a “good energy transition story”. Demand for oil and gas is likely to “remain for many years”, he said, noting the companies’ “excellent reputation for working to high regulatory and environmental standards”.
The companies have said they believe the merger will save around $50 million per year through synergies. Tullow shareholders will have 53% of the combined vote and Capricorn 47%.
Thomson will chair the integration steering committee as the companies merge, but will not have a further role. The companies set out their plans on June 1.