Tullow set to double in size with £276m African oil deal

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The Independent Online

Tullow Oil, the London-listed oil exploration company, is poised to double in size through the $500m (£276m) takeover of the rival West African oil explorer Energy Africa.

Tullow Oil, the London-listed oil exploration company, is poised to double in size through the $500m (£276m) takeover of the rival West African oil explorer Energy Africa.

Shares in Tullow were suspended yesterday after the Dublin-based group confirmed that it had entered a four-week exclusivity period in which to negotiate the purchase of Energy Africa, which would be classed as a reverse takeover.

A successful acquisition of the Johannesburg-listed business would turn Tullow into one of Europe's largest independent oil exploration groups with some 175 million barrels of reserves and production of 50,000 barrels a day. However, in terms of market capitalisation it would still lag a long way behind Cairn, which is worth £1.3bn compared with Tullow's valuation of £325m at yesterday's suspended price of 86.25p.

A combination of Tullow and Energy Africa would create a group with half its assets in the UK and half overseas, predominantly in West Africa. It would also give Tullow's chief executive Aidan Heavey a balance between oil and gas in its portfolio. Energy Africa has a strong presence in Gabon, the Congo and Equatorial Guinea, where Tullow is also represented, but fewer assets in the North Sea where Tullow is bigger. The African company also has interests in what is potentially a big gas field off the coast of Namibia and the M'boumdi oil field in the Congo.

Energy Africa is 65 per cent owned by the Malaysian oil company Petronas, which put its stake up for sale late last year after an attempted takeover bid was rebuffed by the minority shareholders. A further 25 per cent is held by a small group of African investors. Together these shareholders have agreed to the exclusivity period. Tullow said the African shareholders with 25 per cent had indicated they would accept Tullow shares in return for their stakes. The rest of the offer will be in cash, funded by a new debt facility and a small issue of new equity.

Tullow's shares have fallen by almost a quarter in the last few weeks on the back of disappointing test well results and fears that it was preparing for a big acquisition funded entirely in shares. However, it is unlikely to have to issue more than £70m to £80m of new equity to fund the deal.

Tullow had been due to publish results on 14 April but that is likely to be pushed back a few days so the Energy Africa deal can be announced alongside.

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