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DUBAI / Reuters
SOCO International, an oil and gas exploration and production company listed on the London Stock Exchange, said on Monday it was evaluating a merger with Middle East oil and gas firm Kuwait Energy.
A merger would provide a way for the Kuwaiti company to go public after it failed last year to complete an IPO of its shares on London exchange, through which it hoped to raise about $150mn. SOCO, which has a market capitalisation of about $500mn, said discussions with Kuwait Energy’s board were preliminary and no deal terms had been agreed.
“SOCO confirms that, in the context of its stated objective to strategically reshape its business and grow its portfolio, it is evaluating a potential merger of equals with Kuwait Energy,†the company said in a statement issued via the London Stock Exchange. SOCO’s shares rose as much as 15 percent on news of merger talks and were up 9.9% at 123.4 pence at 1224 GMT.
Kuwait Energy has assets in Iraq, Oman, Egypt and Yemen. SOCO has a very different geographic exposure, with interests in Vietnam, Congo and Angola but no major assets in the Middle East. Thomas Stre-ater, head of investment research at MB Commodities Capital, said the merger could benefit both companies.
“With volatile oil prices, it ma-kes sense for small oil companies to merge as getting bigger scale gives them balance sheet to face volatility. SOCO would get a portfolio of low cost, attractive assets, and for Kuwait Energy it would be a way to monetise some of their holdings,†he said.
Streater added that Kuwait Energy’s portfolio was quite attractive “but assets are in Iraq so straight away from an IPO perspective it’s seen as too risky. With the merger, the company’s shareholders will probably get SOCO stock, and then they’ll be able to sell at a later stage.†SOCO had $132 million in cash as of September last year. Kuwait Energy had $43 million in cash at the end of September.
The potential merger would be “a merger of equals, two companies with very similar size and operations, but different geographic exposuresâ€, said one of the sources, who did not want to be named because the discussions are private.