Capricorn Energy is “assessing all options” to its proposed merger with Tullow Oil.
Announced at the start of June, the £1.4bn “merger of equals” would see its headquarters move to London.
The Edinburgh-based oil and gas company's half-year report included a statement from chief executive Simon Thomson which explained that the company is exploring “alternative transactions” while continuing to support the proposed deal.
“The board continues to believe that the proposed merger with Tullow can deliver significant long-term value for shareholders through creating a leading, Africa-focused energy company.
“The board is also mindful of the impact of external factors and market conditions and is, as always, assessing all options to maximise value for shareholders.
“The company is exploring a number of expressions of interest relating to alternative transactions, and is engaging with those parties expressing interest to evaluate potential outcomes.”
The transaction was expected to complete by the end of the year, but Capricorn shareholders may not back it in its current form.
It has been opposed by shareholders including Pallister Capital, which owns more than 5% worth of the business. If the deal goes ahead, Capricorn shareholders would own 47% of the enlarged business, with Tullow having a 53% controlling share.
Last month, Palliser Capital wrote to Capricorn's directors advising them to withdraw their recommendation and initiate a strategic review.
“The proposed merger appears to us to be a poorly disguised nil-premium takeover of Capricorn by Tullow,” it read, with chief executive James Smith adding: “We firmly believe that Capricorn’s standalone value is at least 330p per share, representing a 50% upside to the current share price and implying that the proposed merger represents a value giveaway of over $500m.”
Jamie Sherman, co-chief investment officer at Kite Lake Capital - which has a 7% stake in Capricorn - also last month came out against the deal, stating: “The simple fact is, we don’t want Tullow paper.”
Elsewhere in the stock exchange update, Capricorn disclosed that net cash at the end of the first half stood at $631m, comprising $809m in cash and $178m in debt.
Capital expenditure was $82m during the first six months of 2022, while to business reported a $77m of earn out consideration in relation to the sale of the UK North Sea producing assets.
Capricorn also received its long-awaited India tax refund of $1.06bn, enabling further shareholder returns, with a $500m tender offer and $25m share buyback that completed in July.
As for the outlook, Capricorn stated full-year net capital expenditure would be in the $175m to 195m range.
Development and production in Egypt is due to ramp up in the second half of this year, following initial rig delays, with an expected return of up to $90m.
Thomson added: “Almost one year since the acquisition of the Egypt business, we continue to make good progress and have been successful in prioritising oil and liquids production growth while current commodity prices remain high.”
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