Shareholder letter

Capricorn says Palliser plan ‘would destroy value’

Capricorn Energy
Capricorn’s board proposes a merger with NewMed

The board of Scottish oil and gas explorer Capricorn Energy says a plan for the company proposed by rebel shareholder Palliser is based on “outdated and incorrect facts and assumptions” and would destroy value.

As well as opposing the Edinburgh firm’s proposed merger with Israel-based NewMed, Palliser has requisitioned an extraordinary general meeting to remove seven Capricorn directors and replace them with six of its own nominees.

The board expects the meeting to take place on 1 February.

“If successful, we believe it is likely that Palliser’s nominees will terminate the combination in favour of implementing the plan, which is likely to destroy value,” says the Capricorn board in a letter to shareholders.

It says the board held more than 20 meetings with advisers and others over the last 12 months to review its options, including mergers, liquidations, breakups and potential modifications to its strategy. There were 11 meetings with Palliser.

“We share their stated commitment to maximising shareholder value, and it was in that spirit that we met with the Palliser team,” say the directors.

“We believe [Palliser’s] plan is based on an overstated value of Capricorn on a standalone basis. This is due to Palliser’s reliance on several outdated and incorrect facts and assumptions, including being able to immediately return to shareholders approximately $620 million in cash on a standalone basis, valuing the contingent value rights at over $300 million and underestimating the costs and challenges associated with optimising the Egyptian fiscal terms.

“It also does not reflect the time and costs which would be involved in executing their plan and underestimates the value creation potential of the NewMed combination.

“Our analysis concluded that pursuing this plan would be likely to deliver less value with higher risk over a longer execution period. Specifically, our analysis, adjusting for Palliser’s incorrect facts and assumptions.”

The board says it initially pursued a transaction with Tullow Oil, capitalising on West African oil growth, but ultimately concluded that the combination with NewMed would deliver significantly more value to shareholders by providing material upfront cash return and creating a premium MENA gas-weighted champion with superior yield, growth and energy transition benefits.

The Capricorn board believes that the merged company will have a very high-quality asset portfolio and a resilient revenue base generating regular returns to Capricorn shareholders. This includes the largest interest in the world-class Leviathan Field, enabling the combined Group to provide gas to growing regional energy markets and potentially LNG to European and international markets.

It will be competitively positioned to facilitate and further accelerate gas trade and decarbonisation in the MENA region and will invest in the transition to a low carbon energy system in line with its commitment to achieve net zero Scope 1 and Scope 2 emissions by 2040.

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