Tullow Oil is set to announce a $500 million deal to acquire Energy Africa on Tuesday in a move that will transform the company into one of the biggest independent oil and gas producers of its kind.
The acquisition will turn the exploration group, once a minnow in the sector, into a €1 billion company focused on the UK and west Africa.
"Subject to all the documentation, we should be in a position to finalise things on Tuesday," chief executive Mr Aidan Heavey said yesterday. "$500 million is still the price."
Trading in Tullow shares has been suspended since the end of March following speculation that the exploration group was about to launch a bid for the Johannesburg-listed company. At the time it confirmed that talks were at an advanced stage and it was in exclusive negotiations with the company.
It also said that any offer was likely to be in cash with a share alternative and would be funded through the issue of new equity and bank borrowings.
Market sources said yesterday that Tullow had reached agreement with a number of institutional investors to raise £120 million sterling from a share placing to help fund the deal, which will be structured as a reverse takeover.
There was strong demand to take part in the placing at a price of 95 pence sterling per share when trading resumes.
Demand for stock was three times greater than the amount on offer, sources said.
Tullow shares were suspended at 86.5 pence in London on March 26th, but are expected to open strongly when trading commences on Tuesday.
The company is also expected to issue its 2003 results next week.
Energy Africa had proven and probable oil and gas reserves of 57.9 million barrels of oil equivalent at the end of 2003 and produced 8.1 million barrels that year. It operates in 10 African countries and in the North Sea.
Tullow's African operations currently comprise Gabon, Cameroon and the Ivory Coast. The purchase of Energy Africa will add significantly to this, giving the company a presence in Namibia, Equatorial Guinea and Congo.
"It creates quite a large company focused on the UK gas basin and west Africa," Mr Heavey told Reuters.
"The company going forward will have the largest exposure of all the independents in those two areas."
Energy Africa is 56.6 per cent owned by Engen, a South African firm that is in turn 80 per cent held by Malaysia's Petronas, which also holds 8.7 per cent of Energy Africa directly.
"It's a good mix of the two companies," Mr Heavey said. "Their strategy and focus is pretty similar to ours and there are complementary management skills."
However, earlier this week Tullow issued some less than upbeat drilling news about its Lalmai well in Bangladesh which it said has yet to demonstrate the presence of commercial gas.
Production test results for the well are expected in three to four weeks' time. - (Additional reporting by Reuters)
