Capricorn Energy Tullow Oil merger: Sad, swift loss of head office of Scottish group: Ian McConnell

The head office location of the enlarged group was made plain when the companies announced the deal – London.

Capricorn was until last December known as Cairn Energy – a name which will probably still have a more familiar ring to a greater number of people.

Cairn Energy was founded by former Scottish rugby winger Sir Bill Gammell in the late-1980s.

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Sir Bill, in an interview in early 1995, talked about the origins of the Cairn name and how it related to “building a business stone by stone, trying to get to the top of the mountain”.

Even by then, Cairn had been through some dramatic ups and downs under Sir Bill, whose connections to the Bush political dynasty led him into the US oil and gas industry.

What came across in the interview in Cairn’s old head office in Castle Street in Edinburgh was the former Scottish rugby international’s passion for the business, and his energy and irrepressible spirit.

In early 1995, the company’s stock market value was £50 million, having been revived by a $45m gas discovery in the Gulf of Mexico and some shrewd timing in the sale of part of its US interests.

The group had seen its market capitalisation grow from £5m in 1989 to £75m, then plunge back to £6m about two-and-a-half years before the early-1995 interview with Sir Bill for The Herald.

At that interview, the oil and gas independent’s founder, whose fledgling ventures into the US energy industry had involved his friend from the age of six, George W Bush, declared potential gas discoveries in Bangladesh could be worth more than Cairn Energy itself.

The company was ultimately transformed by its giant Mangala oil find at Rajasthan in India in 2004. Over the years, the business has been involved in a huge array of major deals and projects all over the world. Some things have worked very well and others, such as a major drilling campaign in Greenland, have not.

It has been an exciting business to watch.

And, through its various major and at-times pioneering activities in far-off places and closer to home in the North Sea, Cairn (now Capricorn) has been a stalwart of Scotland’s publicly quoted company sector, run firmly from Edinburgh.

However, announcing their merger last week, Capricorn and Tullow declared: “It is intended that, following completion of the combination, the headquarters of the combined group will be at Tullow’s existing offices in London.”

They did say that it “is intended that the combined group will also retain premises in Edinburgh and through the application of a flexible work policy enable employees to operate from both premises” but, while this is better than nothing, it is cold comfort in the context of the firm intent on the head office location.

The deal with Tullow is expected to result in job losses at both companies.

Capricorn chief executive Simon Thomson acknowledged last week, in an interview with The Herald following news of the merger, that there would be redundancies among the Edinburgh-based company’s 220 staff, and at Tullow, as part of $50m of annual cost savings envisaged from the deal.

He said there would be redundancies “across both companies…because there is duplication of roles”.

This is miserable news for Capricorn employees and for Edinburgh.

It remains to be seen what bearing the merger with Tullow will have on Capricorn’s North Sea activity.

Asked about Capricorn’s future view on the North Sea, given the enlarged group’s focus will be on Africa, Mr Thomson replied: “We have obviously got an interesting position there [in the North Sea] in terms of the southern gas basin – the things we are looking at.”

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Referring to the Diadem well on which drilling is due to start this month, as part of a 50-50 programme between Capricorn and Shell, Mr Thomson noted: “We are about to drill a well in the mid-North Sea.”

He declared Capricorn had “some interesting opportunities” in the North Sea, adding: “We will see how those pan out…The focus will be on Africa. Each company has additional exploration positions outside Africa. We will have to work those through and see how those work out.”

It is interesting to reflect on the scale of the business now led by Mr Thomson, who has been in the chief executive post for 11 years, relative to its £50m stock market worth in 1995 when Sir Bill spoke so enthusiastically about the future of what was then most definitely a minnow in a sector dominated by very large players. Capricorn’s current market capitalisation is around £708m.

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Of course, as Mr Thomson points out, decisions are all about shareholder value.

And it is a duty of the boards of stock market-listed companies to maximise value for shareholders.

Asked about the head office of the enlarged group being in London, given Capricorn and predecessor Cairn Energy have been based in Scotland since the establishment of the business in the late-1980s, Mr Thomson replied: “In terms of the legacy, I think if you asked Bill he would say the same thing – this is all about creating value for shareholders.

“Our view is this combination has greater potential to create value than the individual. Above all else, it is about how to create value.”

Mr Thomson will chair the “integration steering committee” being established to help with the combination of the two companies.

He will leave the enlarged group once the integration is complete, Capricorn noted.

Rahul Dhir, chief executive of London-based Tullow, will hold the same post in the enlarged group following the merger. And Tullow chairman Phuthuma Nhleko will chair the merged oil and gas company.

So it is certainly the end of an era for the business formerly known as Cairn Energy, in terms of it being an oil and gas independent run from Edinburgh.

As is the way of things in mergers and acquisitions, the speed with which important head offices can be lost to the nation contrasts starkly with the decades of effort put into building such independent, Scottish-based businesses from the ground up.