Two oil and gas companies sign merger agreement to establish ‘full-cycle asset base’

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Houston-based Vaalco Energy and Canada-headquartered TransGlobe Energy Corporation have revealed an agreement to combine their operations into a single company, which is expected to create a diversified E&P business, focused on Africa, supporting sustainable growth.

Vaalco and TransGlobe announced on Thursday that they have reached an agreement definitive arrangement agreementwhich will allow the former to acquire all of the outstanding common shares of the latter in a stock-for-stock strategic business combination operation valued at $307 million.

George MaxwellCEO of Vaalco, said: “This transformational transaction aligns with Vaalco’s strategic growth objectives of expanding our African footprint and providing an expanded platform to deliver long-term sustainable value to our shareholders. The respective portfolios complement each other well and result in a diversified full-cycle asset base that significantly increases our production, more than double our reservesand significantly improves our ability to generate meaningful cash flow.

“Equally important, this combination results in a financially stronger company with no net debt, significant cash on the balance sheet, and the size and scale to better fund and execute a strong set of organic opportunities while achieving goals. accretive long-term growth drivers.”

Under the terms of the agreement, Vaalco shareholders will own approximately 54.5% and TransGlobe shareholders approximately 45.5% of the combined company. According to the two energy companies, the merger of their activities will create a “a world-class, Africa-focused E&P company that supports sustainable growth and shareholder returns, and delivers a host of benefits to shareholders of the combined company and other stakeholders.”

This merger is expected to bring together two complementary businesses, creating a full-cycle operated portfolio of low-risk, high-return assets under a production- and development-focused business model. The combined company will have assets located in “prolific and established” basins Egypt, Gabon, Equatorial Guinea and Canadawith “Significant future growth potential.”

Smelting: increasing production and reserves

Instead, Vaalco and TransGlobe management estimate a midterm combined production forecast for 2022 of 19,100 barrels of oil equivalent per day (boepd) on net interest income (NRI) – 96% oil and liquids – based on Egypt, Gabon and Canada and 24,400 boepd based on direct interest (WI).

In addition, the two players also estimate the combined proved reserves (1P) on an NRI basis of 32 million barrels of oil equivalent (Mboe) – 92% oil – and 41 Mboe on a WI basis – 92% oil – as of January 1, 2022 in the case of Vaalco and as of December 31, 2021 in the case of TransGlobe.

In addition, it is estimated that the new company would have combined proven and probable (2P) reserves on an NRI basis of 51 Mboe – 90 percent oil – and 66 Mboes – 91 percent oil on a WI basis.

In addition, the combined company will have net cash, with $53 million in combined net cash as of March 31, 2022 – prior to the receipt of $44.6 million in April 2022 following Vaalco’s March 2022 lift – and have operating free cash flow for “to support sustainable returns and growth for shareholders while maintaining sufficient liquidity and a strong and continuing balance sheet.”

Both players stressed that this combined company will reinforce their existing commitment to financial discipline and shareholder return, with an annualized dividend target of $28 million, an annualized target of approximately 25 cents per share – with payments to be made quarterly – and with a focus on improving distributions to shareholders by returning excess cash through share buybacks and/or dividends.

Breakdown of Vaalco and TransGlobe reserves; Source: Vaalco

Based on the announcement, the combined company will have a “attractive inventory of organic growth projects” across the portfolio in all regions, and with increased scale and broader geographic operations, it is expected that the combined company will be well positioned to benefit from additional targeted inorganic growth in Africa, with reference to strategic criteria , financial and operational strict.

“Vaalco and TransGlobe share similar corporate cultures with strong commitments to financial discipline, shareholder value, operational excellence and positive ESG impact. As such, we believe this transaction is mutually beneficial to the broader stakeholders of both companies and enhances the ability of the combined company to deliver on these commitments,” adds Maxwell.

Vaalco and TransGlobe emphasize that shareholders of the combined company should benefit from a more liquid investment, with an increased number of shares trading on the NYSE and LSE, a combined shareholder profile and increased visibility in the capital markets public, relying on the “strong stock performance” of both players in recent years.

Management team

Once the merger is complete, the combined company will continue to be led by George Maxwell as Chief Executive Officer and Ron Bain as Chief Financial Officer, with TransGlobe’s management team remaining with the company for a transition period of three to six months.

The board of directors of the new company will be composed proportionally of non-executive directors of Vaalco and TransGlobe, with Andrew L. Fawthrop as president, David CookEdouard LaFehr, Tim Marchant, Fabrice Nze Bekaleand Cathy Stubbs as non-executive directors and George Maxwell as director and chief executive.

Randy NelyPresident and CEO of TransGlobe, said: “The added reach and scale of the combined entity will provide a broader platform, which will provide greater stability to TransGlobe’s practice of distributing cash to shareholders as well as growth investment in the operations of TransGlobe in Egypt and Canada. The TransGlobe management team is committed to working with George, Ron and their team to ensure a successful combination of our industry leading teams.

The boards of both companies have unanimously approved the merger, which is expected to be finalized by second half of 2022. Closing of this transaction is subject to the approval of Vaalco shareholders and TransGlobe shareholders, the approval of the Court of Queen’s Bench of Alberta and the approval of the listing of Vaalco shares. to be issued on applicable stock exchanges and other customary closing conditions.

Based on the companies’ joint statement, shareholders’ meetings for TransGlobe and Vaalco are expected to take place in the second half of 2022.

Regarding Vaalco’s most recent activities, it should be noted that the company announced its intention to add two additional wells earlier this month to the scope of work of a jack-up rig owned by Borr. Drilling in Gabon.

By adding these additional wells to the program, the company intends to take advantage of both higher oil prices and reduced overall propagation costs in current contracts.

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