Aker BP, Lundin announce merger
Norway-focused producers Aker BP and Lundin Energy announced on December 21 they would be merging to create one of the country's largest upstream players with a $22bn market capitalisation and 400,000 barrels of oil equivalent (boe)/day in projected output in 2022.
Aker BP will acquire Lundin's oil and gas activities through a statutory merger that values those assets at 125bn Norwegian kroner ($14bn), the companies said. The pair expected to secure up to $200mn in annual synergies as a result of the tie-up, with the combined entity set to enjoy low operating costs.
Aker BP, the larger of the pair with 210,000 boe/d of production in the third quarter, was formed in 2016 through the merger between BP's Norwegian business and Det Norske, and has since acquired several other operators to build itself up. Lundin, which flows around 190,000 boe/d, is owned by the Swedish family of the same name, which also has major holdings in around a dozen other listed companies mainly in the natural resource sector.
Both companies have fared relatively well during the pandemic, supported by rising low-cost production at the Johan Sverdrup oilfield in the Norwegian North Sea, where they are both shareholders. Post-merger, the combined company will have a 31.6% stake in the Equinor-operated project.
Aker BP and Lundin Energy will bring together some 2.7bn boe of oil and gas resources, and the pair said their "attractive pipeline of development projects with low break-evens" would help drive a growth in production to above 500,000 boe/d by 2028.
The two companies also benefit from low carbon intensities, in part thanks to how many Norwegian offshore platforms have been electrified. Lundin is targeting net-zero Scope 1 and 2 emissions as early as 2023.
“We are now creating the E&P company of the future which will offer among the lowest CO2 emissions, the lowest cost, high free cash flow and the most attractive growth pipeline in the industry, with a high dividend capacity combined with a strong investment grade credit rating," Aker BP CEO Karl Johnny Hersvik commented.
“Creating long term value for shareholders has been at the core of this business for 20 years since inception and this combination of Lundin Energy and Aker BP is a unique opportunity to create a future proof independent E&P company, exposing shareholders to a business with significant scale, production growth and strong free cash flow into the next decade," Lundin chairman Ian Lundin added.
Post-merger, Aker BP will be jointly owned by Aker with 21.2%, BP with 15.9%, Nemesia with 14.4% and other Aker BP and Lundin Energy shareholders with 48.6%. The transaction will be settled with the payment of $2.22bn and the issue of 271.91mn shares in the combined entity to Lundin shareholders.
Aker BP also announced an increase in its quarterly dividend by 14% to $0.475/share from January 2022, and has proposed that the combined company would continue paying this higher rate. It wants to raise this dividend by at least 5% annually from 2023 onwards while oil prices are above $40/b.