Caracal Energy Inc. (LSE: CRCL.L) and TransGlobe Energy Corp. (Toronto: TGL.TO) have entered into an 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 ) .

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 billion 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

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.

Both companies are based in Calgary.