North Sea Oil Producer Harbour in Merger Talks with Talos - Sources

Britain's largest North Sea oil and gas producer, Harbour Energy, is in talks to merge with Gulf of Mexico peer Talos Energy, four people familiar with the matter said on Tuesday.

The move would offer Harbour an opportunity to list in New York after CEO Linda Cook decided to scale back North Sea spending and diversify its operations overseas after Britain imposed a windfall tax on oil and gas producers last year in the wake of a surge in energy prices.

Harbour, which has a market value of 2 billion pounds ($2.5 billion) and Talos, valued at $1.8 billion, have held on-and-off talks about a combination for at least six months, but negotiations rekindled in recent weeks, the sources said.

If there is a deal, it could involve the combined company listing in New York, the sources added.

The sources, who spoke on condition of anonymity to discuss private deliberations, cautioned there was no certainty a deal would be reached. Details of the deal terms under discussion could not be learned.

Harbour declined to comment, while Talos did not immediately respond to a request for comment.

Talos shares were up 4.4% at 1820 GMT, after jumping by as much as 11% after Reuters first reported the news.

UK RETREAT

Harbour's retreat from Britain would deal a new blow to London's appeal as a global financial center after companies such as UK chip designer ARM sought listings in rival hubs including New York and after the country was largely cut off from the European Union by Brexit.

Listing in New York could offer Harbour access to oil and gas-focused investors and banks, the sources said.

Harbour's shares have plummeted since the government's first windfall tax was announced last May, trading at around 250 pence, compared with 412 pence at the time of its stock market listing in April 2021 following the acquisition of smaller North Sea rival Premier Oil. 

In November, the British government increased the windfall levy on oil and gas companies to 35% from 25%, bringing the total tax on the sector to 75%, among the highest in the world.

Houston-based Talos has said it expects to produce up to 71,000 of barrels of oil equivalent per day (boed) in the Gulf of Mexico in 2023. Harbour Energy expects to produce up to 200,000 boed in 2022, largely from Britain's North Sea.

The two companies are already partners. Talos holds a stake in the Zama oil development offshore Mexico, where Harbour also holds a 12.4% interest. 

Harbour reported almost no after-tax profit in 2022 as a result of a $1.5 billion non-cash deferred tax charge associated with the windfall tax, which is set to apply until 2028.

Cook said in March that the EPL "disproportionately impacted the UK-focused independent oil and gas companies... This has driven us to reduce our UK investment and staffing levels. 

"Given the fiscal instability and outlook for investment in the country, it has also reinforced our strategic goal to grow and diversify internationally." 

Harbour is also in the process of sharply reducing its headcount in Britain by around 350 people out of a global workforce of 1,700.

Talos has been seeking growth both in traditional oil and gas — it completed the $1.1 billion purchase of EnVen Energy in February — as well as in carbon capture and sequestration.

Private equity firm EIG Global Partners is Harbour's largest investor with a 17.3% stake, according to Refinitiv data.    

(Reuters - Reporting by Ron Bousso and David French; Editing by Greg Roumeliotis, David Gregorio and Lisa Shumaker)

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