Caracal Energy and TransGlobe Energy Announce Proposed Business Combination to Create One of the Largest Independent Africa Focused Oil Producers

Caracal Energy and TransGlobe Energy Announce Proposed Business Combination to Create One of the Largest Independent Africa Focused Oil Producers

Caracal Energy Inc. (LSE:CRCL) (“Caracal”) and TransGlobe Energy Corporation (TSX:TGL)(NASDAQ:TGA) (“TransGlobe”) announced today that they have entered into an agreement (the “Arrangement Agreement”) to merge the two companies by way of an exchange of shares pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the “Arrangement”).
Rationale for the Proposed Business Combination
The Arrangement would create one of the largest independent Africa focused oil producers, poised for strong growth in oil production and reserves from development and high impact exploration in Chad and Egypt. Based on March 14, 2014 closing prices, the merged company would have a combined market capitalization of approximately US$1.8 billion1 and:
Material Onshore Oil Production – Pro forma current oil production of 25,100 bbl/d (company working interest) and 2P reserve base of 135 MMbbl (company working interest) from majority operated assets in Chad and Egypt and additional non-operated interests in Yemen
Near Term Production Growth – Average 2014E production target of 31,000-34,000 bbl/d (company working interest); ongoing appraisal and development program
Catalyst Rich Exploration Program – Campaign of 30-42 high impact exploration wells in Chad by 2016, targeting 70+ per cent of a total 833 MMbbl of gross risked mean prospective resources and low risk step out exploration in the Egyptian Eastern Desert
Strong Regional Position – Enhanced scale provides a platform for future organic and acquisition growth in Africa, building on core operated positions in Chad and Egypt, with ready access to key infrastructure and export markets
Improved Financial Position – Combined business plan remains fully funded, with a pro forma cash position of US$302 million and no net debt as at December 31, 2013, and a growing cash flow profile
“This transaction will clearly benefit both companies and their shareholders, as the enhanced scale will expedite production growth and increase cash flow,” said Gary Guidry, Caracal’s President & Chief Executive Officer. “At its core, this transaction is about greater value creation for all shareholders of the merged company. Through the combination of complementary asset bases, we will create a solid regional platform for compounding reserves and production growth.”
Added Ross Clarkson, TransGlobe’s President & Chief Executive Officer, “Consistent with our onshore, operated, oil strategy, the combination will provide shareholders with significant organic production and reserves growth, while providing increased country diversification. Specifically, we’re pursuing additional upside of over four billion barrels of gross mean unrisked prospective resource, aggressively targeted with a fully funded drilling program. And as one of the largest independent oil producers in Africa, we will be well positioned for future value-enhancing growth.”
The merged company will benefit from an experienced Board of Directors, with Robert Hodgins as independent non-executive Chairman. Other independent board members include Carol Bell, John Bentley, Peter Dey, Ronald Royal, and Brooke Wade. It is proposed that two directors from TransGlobe, Ross Clarkson and Lloyd Herrick, will join the Caracal Board.
After completion of the transaction the combined assets and employees will operate under the Caracal name and will be led by Caracal’s CEO Gary Guidry and a combination of Caracal’s and TransGlobe’s current executive teams.
In connection with the Arrangement, Caracal is required to seek a listing for the merged company on the Toronto Stock Exchange (“TSX”).
Terms of the proposed transaction
Exchange Ratio
Pursuant to the Arrangement, each TransGlobe shareholder will receive 1.23 new common shares of Caracal (“New Caracal Shares”) in exchange for each TransGlobe common share (“TransGlobe Share”) held. After completion of the Arrangement the merged company will have approximately 238,503,645 shares issued and outstanding prior to adjusting for conversion of Caracal’s outstanding convertible debentures. After taking into consideration the conversion of the convertible debentures it is expected that current Caracal shareholders would hold approximately 65.6 per cent and former TransGlobe shareholders would hold approximately 34.4 per cent of the issued shares of the merged company 2
Treatment of TransGlobe Debentures
Upon completion of the transaction, TransGlobe’s 6.0% convertible unsecured subordinated debentures with an aggregate principal amount of CAD$97,750,000 (the “TransGlobe Debentures”) will continue to be obligations of TransGlobe, as a wholly-owned subsidiary of Caracal. The conversion price of the TransGlobe Debentures will be adjusted pursuant to the terms of the trust indenture governing the TransGlobe Debentures based on the exchange ratio under the Arrangement. After completion of the Arrangement, conversion rights will be into Caracal shares.
Following closing of the transaction, in accordance with its terms, Caracal intends to make an offer for the TransGlobe Debentures at Par plus accrued and unpaid interest (the amount of interest will depend on the time of any repurchase). The repurchase offer will be made within 30 days of closing of the proposed transaction. Should a holder of the TransGlobe Debentures elect not to accept the repurchase offer, the debentures will mature as originally set out in their respective indentures. Holders who convert their TransGlobe Debentures following completion of the Arrangement will receive common shares of Caracal.
Dividends
In light of the significant capital programs for development and exploration for the combined company, neither Caracal nor TransGlobe will pay dividends in the interim period prior to closing. However, the Board of the combined company will consider dividends in the future as a part of normal course business.More

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