GLENCORE BUYS CHAD
Glencore Xstrata has offered $1.35bn to buy Caracal Energy, a Chad-focused exploration company, in a deal that underscores its ambitions to build a sizeable oil and gas business.
The Swiss-based commodities group said it had agreed to pay 550p a share in cash for Caracal, which has been its partner in Chad since 2012. The offer of 550p a share is a 61 per cent premium to the closing price of Caracal shares on Friday.
The acquisition puts an end to Caracal's proposed $2bn merger with Canada's TransGlobe Energy and comes less than 24 hours after Glencore announced the sale of its Las Bambas copper project in Peru to a Chinese consortium for $5.85bn.
Analysts said the deal was consistent with Glencore's intent to grow its energy business, which is headed by former BP oil trader Alex Beard.
Although Glencore is one of the world's largest oil traders it has a much smaller presence in upstream oil exploration and production. Its oil interests are in a cluster of west African countries, including Equatorial Guinea, Cameroon and Chad.
While the commodities group has reduced capital expenditure in other business, it has said it will invest $650m to expand its upstream oil business during the next two years.
Last year, Ivan Glasenberg, Glencore chief executive, told investors that medium sized-oil projects were attractive because they required less upfront capital and were less likely to suffer the costly overruns that have plagued the mining industry.
"It is unlikely that the market was expecting an announced acquisition to occur in 24 hours, although Glencore . . . had indicated an intention to build up its own capability in the operating sphere at last year's capital markets day," commented analysts at Goldman Sachs.
"It is a logical use of capital by Glencore, increasing its ownership in assets it already owned 25 per cent of and understood," they added.
Glencore is a partner of Caracal and holds 25 per cent of several 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.
"We believe the combined business will be even better placed to take advantage of the long-term opportunities across the African oil sector," Mr Beard said.
Jason Fairclough, analyst at Bank of America Merrill Lynch, said Glencore was paying the equivalent of $16 a barrel for Caracal, based on attributable proven and probable reserves of almost 90m barrels.
"By way of comparison, other mid-cap exploration and production companies trade at between $8 a barrel up to $38 a barrel. "Inasmuch as Glencore already owns working interests in the assets, it should know the assets well and, we think, understand the risks and opportunities," he said.
Shares in London-listed Caracal surged 55 per cent to a record high of 540p.
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