LONDON: Gulf Keystone Petroleum and ShaMaran Petroleum announced Tuesday they have signed agreements to combine their businesses in a statutory merger under Bermuda law, creating an independent oil producer focused on the Kurdistan Region of Iraq and Federal Iraq.
The combined company would have a pro-forma market capitalization exceeding $1 billion, with working interest production of 53,000 barrels of oil per day and estimated 2P reserves of 323 million barrels across four fields, the companies said.
Under the terms of the deal, ShaMaran shareholders will receive 0.07533958 newly issued Gulf Keystone shares for each ShaMaran share held, valuing ShaMaran's equity at approximately $601 million, or 5.7 billion Norwegian kroner. The exchange ratio represents a 22.9% premium to ShaMaran's closing share price on Oct. 19, and a 28.6% and 32.2% premium based on 30- and 90-day volume-weighted average prices, respectively.
Following completion, Gulf Keystone shareholders and ShaMaran shareholders will each own approximately 50% of the combined company. Gulf Keystone intends to pay a special dividend of $50 million, or $0.23 per share, to its existing shareholders at closing.
Gulf Keystone will be the surviving legal entity. The combined company intends to uplist to the Euronext Oslo Børs main market and eventually delist from the London Stock Exchange. Trading of ShaMaran shares and Swedish depository receipts will cease upon completion.
"The merger creates a stronger company with greater scale, a highly complementary portfolio and a stronger cash flow profile," said David Thomas, non-executive chair of Gulf Keystone. "Together, we are better positioned to navigate the regional environment and to lead the next phase of value-creation as a leading independent oil producer focused on Kurdistan and Federal Iraq."
Jon Harris, CEO of Gulf Keystone, said bringing together the Shaikan field with the adjacent Atrush and Sarsang fields "will deliver synergies and gives the enlarged company a significantly stronger platform to invest in the future development of Shaikan and Hamrin."
The transaction is supported by each company's largest shareholder. The Lundin family holds approximately 25.6% of ShaMaran, while Lansdowne Partners manages shareholdings representing about 13% of Gulf Keystone. Both have indicated they intend to vote in favor of the deal. The Lundin family will become the largest shareholder in the combined company, with William Lundin proposed as non-executive chair.
"This is the logical continuation of the Kurdistan consolidation story, especially given the physical proximity of our assets," said Chris Bruijnzeels, non-executive chair of ShaMaran.
The deal requires approval from 75% of votes cast at a Gulf Keystone special general meeting and two-thirds of votes cast at a ShaMaran meeting. The meetings are expected to be held on or about Dec. 22.
Completion is not conditional on financing, as the merger consideration consists entirely of newly issued Gulf Keystone shares. ShaMaran plans to refinance its 2029 maturity bond, with approximately $144 million outstanding, through a new bond issuance, while Gulf Keystone is considering new debt financing to fund capital expenditures related to Shaikan development.
ShaMaran also announced Monday an investment in a 25% stake in HKN Hamrin Ltd., expanding into Federal Iraq. The company's assets are operated by HKN Energy.
The companies said they conducted customary due diligence reviews and found no material non-public information that could constitute inside information beyond ShaMaran's Hamrin investment and the contemplated bond issues.
Goldman Sachs International is acting as financial adviser to Gulf Keystone, and Pareto Securities is acting as financial adviser to ShaMaran, the companies said.
