Aker BP to merge with Lundin Energy in bid to create leading E&P player of the future

Aker BP to merge with Lundin Energy in bid to create leading E&P player of the future

Norwegian oil and gas company Aker BP has revealed its plans to acquire Lundin Energy’s oil and gas business, through a statutory merger, in a push to create an E&P firm, which will be the largest listed E&P company focused exclusively on the Norwegian Continental Shelf (NCS).

Illustration; Source: Aker BP

Lundin Energy announced on Tuesday that the board of directors of Lundin and Aker BP had reached an agreement on a combination proposal to create a combined European independent E&P company with “a world-class asset base, industry-leading operating costs and low carbon emissions with increased and sustainable dividends.”

Øyvind Eriksen, President and CEO of Aker, and Chairman of Aker BP, remarked: “Already when we created Aker BP, a subsequent acquisition of Lundin Energy was a vision shared between BP and Aker. Today the vision has become a reality. We are seizing an opportunity that will make a difference for both Aker and Norway for decades to come.” 

Based on their statements, both companies share a very strong conviction in the compelling industrial logic behind the creation of a world-class E&P company and have explained that the merger of Aker BP and Lundin Energy unites two highly successful E&P companies which have both been instrumental in the development of the NCS for more than a decade.

Bernard Looney, Chief Executive Officer of BP, commented: “The combination of Aker BP and Lundin Energy’s Norwegian oil and gas business will create a world-scale independent oil and gas company with a leading position in very high-quality, resilient resources with best-in-class CO2 emissions intensity. As long-term investors in Aker BP, we are excited about the prospects for the new enlarged company.”

The completion of the merger proposal is conditional upon, among other things, the combination proposal being approved with a two-third majority vote at the general meetings of shareholders of Aker BP and Lundin Energy, respectively, and the receipt of necessary governmental clearances, including from competition authorities as well as from the Norwegian Ministry of Petroleum and Energy and the Norwegian Ministry of Finance.

The board of directors unanimously recommended to the shareholders to vote in favour of the merger at the 2022 AGM, as they believe it is the best opportunity to create long term shareholder value.

Ian Lundin, stated: “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 cashflow into the next decade.”

Lundin Energy’s largest long term shareholder, the Lundin Family, represented by Nemesia, with significant expertise in the industry, representing 33.39 per cent of the total shares in issue, has signed an irrevocable undertaking to vote in favour of the combination proposal at the AGM 2022.

In addition, Aker Capital and BP Exploration Operating Company, who in aggregate control 64.99 per cent of the shares and votes in Aker BP, have irrevocably undertaken to vote in support of the combination proposal at the general meeting of shareholders of Aker BP.

The proposed combination of Lundin Energy’s E&P business and Aker BP has the strategic and value accretive benefits such as over 2.7 billion barrels of oil equivalent (boe) of reserves and resources with significant growth potential and ownership of 31.6 per cent in the Equinor-operated Johan Sverdrup field, delivering 755 Mbopd gross on plateau.

Johan Sverdrup; Courtesy of Lundin Energy

The merger

According to Aker BP, the merged company will be positioned as the undisputed number two on the NCS, with a combined oil and gas production of above 400,000 barrels of oil equivalents per day and a resource base estimated to 2.7 billion barrels of oil equivalents.

The enlarged Aker BP will be the operator of six major production hubs and will in addition be the second-largest owner of the giant Johan Sverdrup oil field. The firm claims that the merged company will be a globally leading E&P company with regard to low cost and low emissions.

Following the completion of the combination proposal, the shareholders of Lundin Energy will hold 43 per cent of the total number of shares and votes of Aker BP. The proposal will be carried out as a statutory cross-border merger in accordance with Norwegian and Swedish law, through which Aker BP will absorb a company holding Lundin Energy’s E&P business.

Aker is the main shareholder in Aker BP with a 37.14 per cent ownership, held through its wholly-owned subsidiary Aker Capital. After the merger is completed, Aker BP will be jointly owned by Aker (21.2 per cent), BP (15.9 per cent), Nemesia (14.4 per cent), and other Aker BP and Lundin Energy shareholders (48.6 per cent).

The transaction will be settled through a cash consideration of $2.22 billion and a share consideration of 271.91 million new shares issued from Aker BP and distributed to the Lundin Energy shareholders. Aker, BP and Nemesia (Lundin family) have undertaken a six-month lock-up on their Aker BP shares from closing and give irrevocable voting undertakings in favour of the merger.

New company leadership

Following the merger, Aker BP’s executive management team will run the combined company. The target executive management team shall remain available to the combined company for a period of three months after completion of the transaction to ensure an orderly transition. All personnel of Lundin Energy’s oil and gas assets in Norway will remain employed by Aker BP upon completion and will have a work location in Oslo, Norway.

Ashley Heppenstall is joining as a new Lundin-nominated board member. We are looking forward to a long-term collaboration with both BP and Lundin based on a shared ambition of developing and positioning the enlarged Aker BP as the E&P company of the future. Our strengths remain: an excellent workforce, low production cost, low emissions, high growth, a strong balance sheet and an attractive dividend policy,” concluded Eriksen.

Dividend to increase by at least 5 per cent per year from 2023

Lundin Energy will continue with its currently announced quarterly dividend, representing a payment of $0.45 per share in January 2022. Its board has proposed to increase the 2021 quarterly dividend by 25 per cent, amounting to $0.5625 per share from April 2022 until completion of the transaction, subject to approval at the 2022 Annual General Meeting for shareholders.

In addition, Aker BP also proposed to increase its current quarterly dividend by 14 per cent to $0.475 per share from January 2022 and will continue to pay this increased dividend after completion, with the ambition to increase by a minimum of 5 per cent per annum from 2023 onwards.

The merger transaction is subject to extraordinary general meeting approval in Aker BP and subject to annual general meeting approval in Lundin Energy and regulatory approvals. The completion is targeted in the second quarter of 2022.