Local energy firm RAK Petroleum Public Company has put the final touches to a merger deal that gives its shareholders a stake in lucrative operations across the Gulf region and beyond.
Last month, RAK Petroleum announced that it had finalised the merger of its Middle East and North Africa (MENA) operating subsidiaries with Norwegian firm DNO International. The announcement was made after the deal cleared all regulatory requirements, having been approved by the Oslo-listed company’s shareholders in November 2011.
In addition to this new deal, RAK Petroleum also holds licences in its home emirate, as well as Oman and Tunisia, a portfolio the company has built up in just a few years, having only been founded in 2005. The company posted net profits of $14.4m in 2010, almost doubling its 2009 total.
While final results for 2011 have yet to be released, in the first nine months of the year, the company was well on its way to eclipsing its 2010 figures: RAK Petroleum’s regional assets returned net profits of more than $11.7m, not counting the company’s earnings through its existing stake in DNO.
Based on an assessment by international petroleum consultants DeGolyer & MacNaughton, the oil and gas assets of RAK Petroleum and DNO were valued at $250m and $1.64bn, respectively, with the companies having proven and probable reserves totalling more than 400m barrels of oil equivalent.
Under the agreement, 153.42m DNO shares were issued to the RAK firm, giving it a 42.8% stake in its Norwegian partner. Even before the merger, RAK Petroleum had been the largest single shareholder in DNO, having increased its investment in 2010 from 10% to 30%.
Bijan Mossavar-Rahmani, the chairman and CEO of RAK Petroleum, as well as the executive chairman of DNO, says the merger opens up opportunities for expansion.
“We are excited about the next phase of growth for both companies,” he said after DNO’s shareholders signed off on the deal. “RAK Petroleum now plans to focus on further non-operated investments in the oil and gas sector, and DNO International now has an even stronger and diversified platform for growth, with plans for a dual listing on the London Stock Exchange in 2012.”
The proposed listing on the London exchange is expected to contribute to extended coverage of the company’s shares, attract interest from a broader range of MENA-focused investors and provide a solid platform for follow-on merger and acquisition activity.
The merger has been a carefully planned marriage, with the final union taking well over six months. In July 2011, the two companies agreed to the outline of the merger, with negotiations and due diligence being carried out across the second half of the year, before shareholders of both firms voted in favour of the deal in November.
DNO is in the process of ramping up production at its Tawke field in the Kurdistan region of Iraq, which began preliminary pumping in 2007 and was fully connected into export pipelines two years later. Currently, capacity is around 70,000 barrels per day (bpd), a figure the firm expects to increase to 100,000 this year and to 200,000 in the near future. The firm also has two other licences in Kurdistan and is conducting exploration surveys on the fields, licences for five blocks in Yemen and one in Tunisia.
With the addition of RAK Petroleum’s assets in Oman, Tunisia and RAK itself, the company will have a broader base of operations, as well as established production, Mossavar-Rahmani said in an interview with industry publication Oil and Gas Middle East in late 2011.
“The RAK Petroleum assets would help DNO become a stronger company, not just because of the value of bringing our expertise to the Iraq operations,” he said. “By contributing our blocks in the UAE, Oman and Tunisia, we will transform DNO from a two MENA-country company into a five-country MENA presence.”
DNO could very well have a presence in several MENA countries if Mossavar-Rahmani has his way, with the executive chairman saying RAK Petroleum’s experience could be parlayed into moves to enter the Libyan and South Sudanese markets.
RAK Petroleum’s increased stake in DNO could take both firms a long way, paying dividends to investors, as the independent producer looks to boost production and raise its profile.