Tullow Oil is raising £41.8 million sterling (£53.5 million) through a share placing and offer to part fund a cash acquisition of gas assets which will cost up to £201 million sterling (£257 million). The balance of the funding will come from bank borrowings.
The deal will double the size of Tullow and provide the company with significant cash flow for future exploration and development. In production terms the company's output will be about five times its current levels. Existing shareholders will be invited to provide some £22.6 million sterling of the funding required.
The assets, several producing gas fields in the North Sea, associated pipelines and processing facilities, are being acquired from BP Amoco. The £201 million price tag may be adjusted downwards if assets fall out of the deal because their existing co-owners decline to sell.
Tullow is issuing 77 million new shares at 57.5p sterling each (93 cents or 73.24p). The share sale, which is being fully underwritten by Investec Bank, will raise £44.28 million before expenses and £41.8 million after expenses for Tullow.
At 57.5p the offer price is at a 9.5 per cent discount to the 63.5p price at which Tullow shares were suspended last week. Of the 77 million new shares being issued, existing shareholders will be offered 39,322,026 shares in a one new share for every seven held rights issue. The remaining 37,677,974 shares will be placed with institutional and other investors. A 12-month loan agreement has been signed for up to £140 million sterling in bridging finance. It is secured by a fixed charge over all Tullow's assets and a company guarantee.
The acquisition price is at a high premium to net book value of the assets - some 2.25 times the £89.3 million net book value of the assets at March 31st, 2000. But analysts said that the net present value of the assets - which is difficult to estimate for exploration assets - is at or about the agreed purchase price.
On a profits multiple, the price is 5.4 times the £37.3 million profit before tax attributable to the assets for the year to end December 1999. Completion is conditional on the approval of Tullow shareholders, the UK government, the EU Commission and the existing licence partners involved in the fields.
Shareholder approval will be sought at an extraordinary general meeting on August 25th. A prospectus, details of the offer and notice of the e.g.m. will be posted to shareholders tomorrow. Tullow managing director Mr Aidan Heavey: "We are delighted with this acquisition, which, in a single transaction, meets all the targets identified in our recent major strategic review. It will transform Tullow, provide sufficient production revenue to fund all our foreseeable international exploration projects and unlock significant upside potential offshore UK."
BP Regional President Mr Steve Marshall said the deal would give Tullow entry to UK offshore waters where they will bring a new perspective. "We have a transition plan in place and will provide all necessary assistance to Tullow and the coventurers to ensure a safe and smooth handover," he said.
Because of the size of the acquisition for Tullow, it is classified as a reverse takeover under the Stock Exchange rules. Tullow shares, which were suspended last Thursday, are expected to be restored on August 3rd after the prospectus and other documentation are published.
The assets, which cover Atlantic Richfield's share in several gas producing fields and associated infrastructure, are being sold to ensure that BP Amoco gets approval from the EU Commission for its takeover of Atlantic Richfield.
