Capricorn and NewMed today announced a proposed combination to create a MENA gas and energy champion and one of the largest upstream energy independents listed in London. A cash special dividend of $620 million is proposed to be paid to existing Capricorn shareholders immediately prior to the completion of the Combination.

The Combination will be effected by Capricorn acquiring all of the partnership interests in NewMed in consideration for the issue of new Capricorn shares to NewMed unitholders based on an exchange ratio of 2.337344 New Capricorn Shares for every NewMed participation unit.

The Combination will result in Capricorn shareholders holding approximately 10.3 per cent of the share capital of the Combined Group and NewMed unitholders, together with NewMed’s current general partner, holding in aggregate approximately 89.7 per cent of the share capital of the Combined Group at completion of the Combination. The Combined Group will trade under the name NewMed Energy and expects to retain its existing Premium Listing on the London Stock Exchange (“LSE”). It intends to implement a listing of its entire issued share capital on the Tel Aviv Stock Exchange (“TASE”) to take effect on or as soon as possible after Completion of the Combination. It is expected that UK FTSE indexation will also be maintained.

Under the terms of the Transaction, Capricorn Shareholders will receive a cash special dividend expected to be $620 million, equivalent to £1.72/share(1, 2) immediately prior to Completion of the Combination.

The Combination exchange ratio values Capricorn, on an ex-dividend basis, at $338 million or £0.99/share(3), a 46 per cent premium to the theoretical ex-dividend price on 28 September 2022 (being the last business day prior to the date of this announcement).

The expected total value of the Transaction to existing Capricorn Shareholders is therefore equivalent to 271 pence per Capricorn Share. This represents a premium of:

• 13 per cent. to the closing price of 240 pence per Capricorn Share on 28 September 2022 (being the last business day prior to the date of this announcement); and
• 36 per cent to the closing price of 199 pence per Capricorn Share on 31 May 2022 (being the last business day prior to the date of the previously announced Tullow Combination).

The board of directors of Capricorn believes that the Transaction is in the best interests of Capricorn Shareholders and intends to recommend unanimously that Capricorn Shareholders vote in favour of the resolutions to be proposed by Capricorn at the shareholder meeting to be held to approve the Transaction. Accordingly, the Capricorn Board has unanimously decided to withdraw its intention to recommend the Tullow Combination.

The board of directors of NewMed has confirmed its intention to recommend unanimously that NewMed unitholders vote in favour of the resolutions to approve the Combination. Delek Group, NewMed’s principal unitholder, which holds voting interests in c.54% of NewMed’s Units, has entered into an irrevocable commitment to vote its Units in favour of the Combination.

The Board of the Combined Group will have a clearly defined governance structure in line with the UK Corporate Governance Code. Whilst it is currently proposed Simon Thomson, the CEO of Capricorn, will become the transitional Chair of the Combined Group, to provide continuity through the Combination process, a search for an independent Chair will be undertaken and it is intended all UK corporate governance principles will be complied with in due course.

As well as the Chair, the Board of the Combined Group will comprise Yossi Abu as CEO, James Smith as CFO and 7 Non-executive Directors, with 2 expected to be representatives of the Delek Group and 5 expected to be independent non-executive directors (2 of which will come from the existing Capricorn Board). Accordingly, a majority of the directors of the Board of the Combined Group, excluding the Chair, will be independent. 

Combination Highlights:

• Significant return of value in cash to existing Capricorn shareholders
• Creates a MENA gas and energy champion and one of the largest upstream energy independents listed in London
• Diversified portfolio of high-quality producing assets in Israel and Egypt underpinned by 45.34% interest in Leviathan, one of the world’s most attractive gas fields
• Combined 2P + 2C reserves and resources of c.11.8 TCF and 690 MMscfd of net working interest production
• Significant cash flow generation from sustainable producing asset base with tangible development projects set to deliver production to > 1.2bcf/d by 2030 subject to relevant project approvals
• Long-term contracts provide strong cash flow visibility and downside protection, while retaining exposure to commodity price growth
• Material and sustainable dividend policy – initially targeting a minimum annual dividend of 30% of annual free cash flow, pre-growth capex and after financing costs
• Attractive diversified exploration portfolio across Cyprus, Egypt, Israel, UK, Mexico, Mauritania and Suriname
• Commitment to net zero carbon emissions by 20404; Ultra low scope 1 & 2 emissions from Leviathan of ~1.7kgCO2/boe
• Material gas production helping customers reduce carbon emissions, provide reliable and affordable energy, and playing a crucial role in the energy transition. 

Nicoletta Giadrossi, Chair of Capricorn said:
“The Board has engaged in a robust and dynamic process to evaluate options for Capricorn and considered a broad range of external factors and market conditions. The Combination with NewMed
and a cash special dividend represent the delivery of significant value for Capricorn shareholders. We believe this is a compelling transaction which combines near term value realisation with ongoing participation and value creation in a world class gas company.”

Simon Thomson, Chief Executive of Capricorn said:
“This transaction delivers our shareholders a substantial capital return, together with an ongoing stake in a differentiated UK listed company, shaped for the future of the energy industry. The combined business will offer investors a gas business of scale, with the prospect of near-term growth, a dependable capital returns policy, and a compelling ESG narrative to support the energyhungry markets of the Middle East, North Africa and Europe.”

Yossi Abu, Chief Executive of NewMed said:
“By combining with Capricorn we are creating a leading MENA gas and energy company, whilst significantly benefiting the shareholders of both companies. With 2P & 2C reserves and resources of approximately 11.8 TCF, predominantly gas from Leviathan, low-cost and highly cash generative production, the Combination creates a true regional energy champion.

Secure, sustainable, and long-life cash flows will allow the Combination to offer a compelling mix of capital distributions to shareholders and growth potential. With Capricorn, we have a shared vision on a disciplined capital allocation framework and a strategy to potentially significantly increase our production while expanding to the LNG market with the aim of supplying Europe’s growing gas demand. The Combination will play a pivotal role in the energy transition, through organic brownfield cost effective developments while delivering attractive returns to our shareholders.

On behalf of NewMed, I would like to thank all our stakeholders for their support for this highly attractive Combination. With our new partners at Capricorn, we are extremely excited about the future.”

1. Based on foreign exchange rates on 28 September.
2. Assuming an issued share capital of 315.1 million shares and taking into account the proposed related payment to participants in certain of Capricorn’s share plans of a cash sum referable to the effect of the Transaction.
3. Based on NewMed share price and foreign exchanges rates on 28 September 2022 and assuming a Capricorn issued share capital of 315.1 million shares.

NewMed Energy current operations

Leviathan

• Status: Producing
• Resources: 605.00 BCM
• Working Interest: 45.34%
• Partners: Chevron (39.66%), Ratio (15%)

Leviathan, with 22.9 TCF of recoverable gas, is the largest natural gas reservoir in the Mediterranean, and one of the largest producing assets in the region.

The reservoir was discovered in December 2010 by NEWMED Energy (with a working interest of 45.3%), Chevron (which was called "Noble Energy" at the time, with a working interest of 39.7%) and Ratio (with a working interest of 15%).

In February 2017, after intensive evaluation of the 330 sqkm field, the Leviathan partners took a final investment decision on executing Phase 1A of the field's development plan, with an annual production capacity of 12 BCM. Production of natural gas from Leviathan began on December 31, 2019, on time and on budget, and since has become a cornerstone of gas supply in Israel, Egypt and Jordan.

The Leviathan Field is located in the Israeli EEZ, approximately 130 km off the shores of Haifa. Production is facilitated by 4 subsea wells that are connected, via a subsea manifold and two 120 km long pipelines, to an offshore platform, where all processing of gas takes place. From the platform the gas is piped to shore into the Israeli national grid, through which it is distributed to clients in Israel, Egypt and Jordan. With nearly 0.7 TCF produced by end of 2021, Phase 1A of the field’s development has proved a resounding success on many fronts, most importantly in establishing a reliable and formidable natural gas supply source to the countries of the region.

Leviathan Phase B

• Status: Producing
• Resources: 605.00 BCM
• Working Interest: 45.34%
• Partners: Chevron (39.66%), Ratio (15%)

The development strategy of Leviathan builds on the success of the existing project, on the massive resource base and its strategic location, and on the increase in regional and global demand of natural gas.

This increase in demand is fueled in large part by the energy transition and local, regional and global efforts to decarbonize the economy.

The facilities of Leviathan Phase 1A were designed and constructed to accommodate future expansion of production, by adding various modules to existing infrastructure. For example, the Leviathan Processing Platform was designed such that it can accommodate equipment that would increase its output from 12 to 21 BCM.

While the current development is strictly based on the Israeli natural gas grid and on a pipeline network, Phase B of the project is expected to include a significant liquefaction component, that will expand Leviathan's customer base beyond the Eastern Mediterranean, to Europe and the Far East. To that end, commercial negotiations are being held with two existing liquefaction facilities in Egypt, while an option for liquifying natural gas on a floating facility anchored in the Israeli EEZ is being explored.

Aphrodite

Status: Developement pending
Resources: 129.00 BCM
Working Interest: 30.00%
Partners: Chevron (35%), Shell (35%)

The First Natural Gas discovery in Cyprus
The Aphrodite natural gas field, located in Block 12 of the exclusive economic zone of Cyprus, has the potential to have the same transformative effect on Cyprus as Tamar and Leviathan had on Israel, in terms of national energy independence, significant revenues for the state and material environmental improvements.

The Aphrodite field is located 160 km south of Limassol, and 30 km northwest of the Leviathan field, in an area where sea depth is 1,700 meters. Aphrodite was discovered by the A-1 well in September 2011. The A-2 appraisal well, drilled in 2013, confirmed approximately 98 BCM of contingent resource with a potential for an additional 26 BCM of prospective resources.

In November 2019, the Government of Cyprus granted the partners in Block 12 a production license for 25 years, with an option to extend the term by another 10 years, together with the approval of an outline for development of the reservoir.

Export markets
The Aphrodite partners and the Government of Cyprus are exploring options to supply natural gas to the domestic market in Cyprus, and to export natural gas by pipeline to other markets, including the Egyptian market, and the global LNG market.

NewMed Energy is exploring, together with its partners, options for optimizing existing infrastructure in the region, including a joint transmission infrastructure for the export of natural gas to various target markets. Such synergies are explored, for example, with Leviathan and other regional projects, leveraging existing and planned facilities.

New Ofek and New Yahel

New Ofek and New Yahel are two onshore exploration licenses, located in central and northern Israel, respectively.

The partners in these licenses, led by SOA Energy as operator and joined by NewMed Energy in 2019, are targeting geologic layers of the Permian and Triassic periods, which are highly prospective in the Persian Gulf and in Syria.

The first step in proving the prospectivity of these layers in Israel is by performing production tests in the existing Ofek-2ST well, where they have already been penetrated. With a potential of over 0.9 TCF of natural gas located near industrial complexes and independent powerplants, successful tests are likely to support further appraisal activities towards an optimized development.

The partners are currently planning the first exploration well in the New Yahel license, to examine the Permian and Triassic prospectivity. Commercial findings in the New Ofek license, if encountered, shall significantly increase the chance of success of such an exploration well.

KeyFacts Energy: NewMed Energy Israel country profile   l   KeyFacts Energy: Acquisitions & Mergers news

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