Finance News

VAALCO Energy Acquires TransGlobe Energy

VAALCO Energy, Inc. (NYSE: EGY; LSE: EGY) (“VAALCO”) and TransGlobe Energy Corporation (TSX: TGL; NASDAQ: TGA; AIM: TGL) ("TransGlobe") (VAALCO and TransGlobe together, the “Combined Company”) announced today that they have entered into a definitive arrangement agreement (the “Arrangement Agreement”) pursuant to which VAALCO will acquire all of the outstanding common shares of TransGlobe in a stock-for-stock strategic business combination transaction valued at US$307 million (the “Transaction”).

Under the terms of the Arrangement Agreement, VAALCO will acquire each TransGlobe share for 0.6727 of a VAALCO share of common stock, which represents a 24.9 percent(1) premium per TransGlobe common share based on the companies’ respective 30-day volume weighted average share prices as of market close on July 13, 2022. The Transaction will result in VAALCO stockholders owning approximately 54.5 percent and TransGlobe shareholders owning approximately 45.5 percent of the Combined Company.

Strategic Rationale for the Transaction

The combination of VAALCO and TransGlobe will create a world-class African-focused E&P Company supporting sustainable growth and stockholder returns, and provide a host of benefits to the Combined Company’s stockholders and other stakeholders:

  • The Transaction will bring together two complementary businesses, creating an operated, full-cycle portfolio of low-risk, high return assets under a production and development-oriented business model:
    • Assets located in prolific and established basins in Egypt, Gabon, Equatorial Guinea and Canada, with significant future growth potential; 
    • Combination of two highly capable subsurface / technical, operational and business development teams enabling the pooling of operational best practices, skills and technology across the combined portfolio; and
    • A highly experienced management team with an established and multi-decade track record of value creation in the Combined Company’s areas of operation;
  • The Combined Company will have a larger, and more diversified reserves and production base, enhancing risk management, increasing portfolio optionality to high-grade and sequence investment projects towards the highest-return projects, as well as increasing access to a broader set of capital sources relative to each company on a standalone basis. The management of VAALCO and TransGlobe estimate:
    • Combined 2022 mid-point production guidance of 19,100 barrels of oil equivalent per day (“boepd”) on a net revenue interest (“NRI”) (96 percent oil & liquids) basis across Egypt, Gabon and Canada and 24,400 boepd on a working interest (“WI”) basis(2)
    • Combined proved (1P) reserves on an NRI basis of 32 million barrels of oil equivalent (“MMboe”) (92 percent oil) and 41 MMboe on a WI basis (92 percent oil) (as at January 1, 2022 in the case of VAALCO and as at December 31, 2021 in the case of TransGlobe)(2); and
    • Combined proved plus probable (2P) reserves on an NRI basis of 51 MMboe (90 percent oil) and 66 MMboe (91 percent oil) on a WI basis (as at January 1, 2022 in the case of VAALCO and as at December 31, 2021 in the case of TransGlobe)(2);
  • The Combined Company will be in a net cash(3) position, with US$53 million in combined net cash as of March 31, 2022 (prior to the receipt of US$44.6 million in April 2022 from VAALCO’s March 2022 lifting), and have operational free cash flows to underpin sustainable stockholder returns and growth while maintaining sufficient liquidity and a continued robust balance sheet;
  • The Combined Company will reinforce VAALCO’s and TransGlobe’s existing commitment to financial discipline and stockholder returns, with a target annualized dividend of US$28 million, an annualized target of approximately 25 cents per share (with payments to be made quarterly), and with a focus on further enhancing stockholder distributions through returning excess cash via share buybacks and/or dividends; 
  • The Combined Company will have an attractive inventory of organic growth projects across the portfolio in all regions, and will be more favorably positioned to self-fund, optimize and generate value from these projects on account of the Combined Company’s superior operational and technical capabilities and financial resources, relative to each of VAALCO and TransGlobe on an individual basis; 
  • In addition, with increased scale and broader geographical operations, it is expected that the Combined Company will be well positioned to benefit from additional targeted inorganic growth in Africa, with reference to strict strategic, financial and operational criteria; 
  • Stockholders in the Combined Company should benefit from a more liquid investment, with an increased number of shares traded on the NYSE and LSE, a combined stockholder profile and increased visibility in the public capital markets, building on the strong equity performance of each of VAALCO and TransGlobe in recent years; and
  • The Boards of Directors of both companies have unanimously approved the Transaction.

George Maxwell, VAALCO’s Chief Executive Officer, said:

“This transformational transaction is consistent with VAALCO’s strategic growth objectives of expanding our African footprint and providing an enlarged platform to deliver long-term, sustainable value for our stockholders. The respective portfolios complement one another well and result in a diverse, full-cycle asset base which materially increases our production, more than doubles our reserves, and significantly enhances our ability to generate meaningful cash flow. Just as important, this combination results in a financially stronger company with no net debt, significant cash on the balance sheet and the size and scale to better fund and execute on a robust set of organic opportunities while delivering accretive long-term growth objectives. 

“VAALCO and TransGlobe share similar corporate cultures with firm commitments to financial discipline, stockholder value, operational excellence and positive ESG impact. As such, we believe this transaction is mutually beneficial for the broader stakeholders of both companies and reinforces the ability of the Combined Company to deliver on those commitments. We look forward to engaging with both sets of equity holders as we re-emphasize the mutually beneficial nature of the proposed transaction and the vision for the stronger Combined Company.”

Randy Neely, TransGlobe’s President and Chief Executive Officer, said:

“We are very pleased to bring together two leading international oil and gas companies, each with decades of operational excellence in Africa. Under the stewardship of a joint VAALCO and TransGlobe board, we are confident that the assets of VAALCO and TransGlobe will continue to provide strong shareholder returns. The additional scope and scale of the combined entity will provide a larger platform, which will provide greater stability to TransGlobe’s practice of distributing cash to shareholders as well as growth investment in TransGlobe’s operations in Egypt and Canada. The TransGlobe management team is committed to working with George, Ron and their team to ensure a successful combination of our industry-leading teams.”

Management, Board and Corporate Matters 

The Combined Company will continue to be led by George Maxwell as Chief Executive Officer and Ron Bain as Chief Financial Officer, with the executive team of TransGlobe remaining with the business through a three to six month transition period.

  • The Combined Company’s Board of Directors will be proportionally comprised of VAALCO and TransGlobe non-executive directors, with Andrew L. Fawthrop as Chair, David Cook, ​Edward LaFehr, Tim Marchant, Fabrice Nze-Bekale, and Cathy Stubbs as non-executive directors and George Maxwell as a director and Chief Executive Officer; 
  • TransGlobe’s technical teams in Canada and Egypt provide skillsets that are applicable to the entire combined portfolio;
  • VAALCO will remain a Delaware corporation with its corporate headquarters situated in Houston, Texas;
  • VAALCO’s shares will continue be listed on the NYSE and are intended to be readmitted to trading on the Standard Segment of the LSE, both under the ticker symbol “EGY”; and
  • VAALCO intends to apply for the cancellation of trading of TransGlobe’s shares on AIM, and the delisting of TransGlobe’s shares from the TSX and TransGlobe’s shares will be delisted from the Nasdaq.

Transaction Terms

  • VAALCO to acquire, through an indirect wholly-owned subsidiary, each TransGlobe share for 0.6727 of a VAALCO share; 
  • Implied TransGlobe equity value of US$307 million (with premium), and enterprise value of US$273 million assuming cash of US$37 million and debt of US$3 million as of March 31, 2022;
  • A 24.9 percent premium per TransGlobe share based on VAALCO’s and TransGlobe’s respective 30-day volume weighted average share prices as of July 13, 2022; 
  • VAALCO stockholders and TransGlobe shareholders will own approximately 54.5 percent and 45.5 percent of the Combined Company, respectively;
  • The Transaction will be implemented by way of a court-approved plan of arrangement under the Business Corporations Act (Alberta);
  • The Transaction requires approval by at least 66 2/3% of the votes cast by the holders of TransGlobe shares present in person or represented by proxy at a special meeting of the holders of the TransGlobe shares to be called to consider the Transaction;
  • The issuance of the VAALCO shares pursuant to the Transaction requires approval by the holders of a majority of shares of VAALCO common stock who, being present or voting by proxy and entitled to vote at the VAALCO stockholders meeting, cast votes affirmatively or negatively on the VAALCO share issuance resolution. VAALCO will also propose to amend its certificate of incorporation to increase the size of its authorized share capital in order to issue the VAALCO shares. Approval of this proposed amendment will be required by the holders of a majority of the outstanding shares of VAALCO common stock entitled to vote at the VAALCO stockholders meeting; 
  • The Arrangement Agreement provides for customary deal protection provisions, including reciprocal non-solicitation covenants and rights to match superior proposals; 
  • The Arrangement Agreement provides for mutual termination fees of US$9.15 million in the event the Transaction is terminated by either party in certain circumstances; and
  • Each of VAALCO’s and TransGlobe’s directors and certain members of the executive leadership team have entered into voting support agreements agreeing to vote their shares or stock in favor of the Transaction.

Path to Completion

The Boards of Directors of both companies have unanimously approved the Transaction.

The Transaction is expected to close in the second half of 2022. Closing of the Transaction is subject to approval by the stockholders of VAALCO and the shareholders of TransGlobe, the approval of the Court of Queen's Bench of Alberta, approval for listing of the VAALCO shares to be issued on the applicable stock exchanges and other customary closing conditions.

It is anticipated that both the TransGlobe shareholder and VAALCO stockholder meetings will take place in the second half of 2022.

Further information regarding the Transaction will be contained in a management proxy circular that TransGlobe will prepare, file and mail to TransGlobe common shareholders in advance of the TransGlobe shareholder meeting and a proxy statement that VAALCO will file with the SEC and mail to stockholders of VAALCO in advance of the VAALCO stockholder meeting. Copies of the Arrangement Agreement and management proxy circular will be available on TransGlobe’s profile on SEDAR and the Arrangement Agreement and VAALCO proxy statement will be available at the SEC’s website. See “Important Information about the Transaction and Where to Find It” and “Certain Canadian Regulatory Matters” below. 

Advisors

VAALCO has retained Stifel, Nicolaus & Company, Incorporated as sole financial advisor, and Mayer Brown International LLP, Osler, Hoskin & Harcourt LLP, and Al Kamel Law Firm as legal counsel.

Evercore Partners International LLP is acting as the sole financial advisor, and Burnet, Duckworth & Palmer LLP, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Bird & Bird LLP and Sharkawy & Sarhan are acting as legal counsel to TransGlobe. Canaccord Genuity Limited is acting as nominated adviser and corporate broker to TransGlobe.

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