FT. Caracal Energy and TransGlobe Energy, two Africa-focused junior oil companies, have announced plans to merge, in a move that will create a group worth nearly $2bn with operations stretching from Chad and Egypt.
The companies said in a joint statement released during the weekend that their merger will "facilitate future organic and acquisition growth in Africa".
Big oil companies including Royal Dutch Shell, Total of France, and ConocoPhillips and Chevron of the US are selling some of their mature onshore assets in the continent to instead focus their attention on new growth areas, particularly in deep water offshore in west and east Africa.
Seplat, a Nigeria-based oil company, announced earlier this month plans for a $500m initial public offering in London to buy assets from the super majors. Seplat hopes its listing will give it a valuation of as much as $2bn.
The company created by merging Caracal and TransGlobe aims to lift oil production to 31,000-34,000 barrels a day this year, up from 25,100b/d in 2013. London-listed Caracal sees more upside in Chad as it plans to drill up to 42 wells there between 2014 and 2016.
"Through the combination of complementary asset bases, we will create a solid regional platform for compounding reserves and production growth," said Gary Guidry, chief executive of Caracal.
Mr Guidry will be the head of the merged company. Before running Caracal, he was chief executive of Tanganyika Oil, a Calgary-based oil group with assets in Syria and Egypt that was bought by Sinopec of China for $1.8bn in 2008.
Glencore Xstrata, the commodities trading house, is a partner of Caracal and holds 25 per cent of several of its oilfields in Chad following a $300m financing deal in 2012, when the group was known as Griffiths Energy.
Caracal's oilfields are close to those operated by ExxonMobil, which pumps about 100,000b/d in Chad. The oil is exported by pipeline through Cameroon.
Mr Guidry has in the past argued that the company's existing oil production would facilitate its growth. "We have the luxury of cash flow – we are an exploration but also a production company," he said in September. "That means we are not in the same boat as others with great exploration assets, but who are vulnerable and beholden to the markets for raising money."
The merger will see TransGlobe investors receiving 1.23 new common shares of Caracal for each of their shares. After the merger, Caracal's shareholders will control 65.5 per cent of the new company, with TransGlobe controlling 34.4 per cent.
The merged company, which will operate under the Caracal name, plans to list on the Toronto Stock Exchange.
In November Caracal successfully raised $200m of equity in London to develop its Chadian assets, only five months after it had to abandon similar plans because of poor investor demand. The company raised $174m of debt in 2013 following an earlier $125m placement of shares.
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