Tullow Oil has declared it remains “fully committed” to its merger with Edinburgh-headquartered Capricorn Energy despite resistance to the deal from some key Capricorn shareholders.

The announcement comes a week after Capricorn, formerly known as Cairn Energy, said it is exploring alternatives to the all-share merger. However, directors at Capricorn continue to support the deal with Tullow.

Tullow – which like Capricorn is focused on exploration and production in Africa – underlined its determination to carry through with the £1.5 billion deal as it unveiled an increase in revenues and a surge in profits during the six months to the end of June. Gross profits almost doubled to $620 million (£535.3m) and at the pre-tax level nearly trebled to $264m (£229m).

Chief executive Rahul Dhir hailed the company’s “very efficient” drilling programme for the improved performance. Tullow expects to host a capital markets day in connection with the Capricorn deal in the fourth quarter of this year before closing by the end of December.

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“The board of Tullow remains fully committed to the merger with Capricorn which continues to be recommended by both the Tullow and Capricorn boards on the current terms,” Mr Dhir said. “We firmly believe the proposed merger has the potential for material value creation by implementing a combined business plan which accelerates investment in key projects and delivers very significant synergies.”

Under the terms of the deal announced on June 1, the headquarters of the combined group will be in London with Simon Thomson standing down as chief executive of Capricorn. Upon completion Capricorn shareholders will hold approximately 47 per cent of the enlarged group, and Tullow shareholders 53%.

Capricorn shareholders Madison Avenue, Legal & General IM, Schroders and others have come out against the plan with Schroders saying a fairer deal would see Capricorn shareholders getting 70% of the new entity. The deal needs approval from at least 75% of Capricorn shareholders.

READ MORE: Capricorn considers ‘all options’ to £1.5bn deal with Tullow Oil

Tullow – which currently has a market capitalisation of approximately £722m and net debts of £2bn – yesterday reiterated its guidance for full-year free cash flow of $200m. Cash flow in the first six months came in at a negative £205m following acquisition and arbitration costs.

“The turnaround of Tullow has gained momentum in the first half of 2022, with solid production from our West African portfolio driving stronger financial performance,” Mr Dhir said.

Capricorn reported a disappointing set of interim results last week, with a reduction to full-year production guidance after drilling fewer wells than expected in Egypt. There was also further misfortune in the North Sea as the company confirmed that its Diadem well had come up dry.

However, Capricorn returned more than $500m (£433.8m) to shareholders in July after receiving a tax refund of approximately $1.06bn from the Indian Government. The remaining proceeds are being used to strengthen the company’s balance sheet.

READ MORE: Capricorn Energy, formerly Cairn Energy, and Tullow Oil to merge

Commenting on the proposed deal with Tullow, Capricorn said the merger would create a company with assets and investment opportunities to deliver significant production growth and sustainable, regular dividends.

“The board continues to believe that the proposed merger with Tullow can deliver significant long-term value for shareholders through creating a leading, Africa-focused energy company,” Capricorn said.

“The board is also mindful of the impact of external factors and market conditions and is, as always, assessing all options to maximise value for shareholders. The company is exploring a number of expressions of interest relating to alternative transactions, and is engaging with those parties expressing interest to evaluate potential outcomes.”

Shares in Capricorn closed yesterday’s trading 4.6p lower at 237.6p, while Tullow was 1.1p higher at 50.8p.