UK-based oil and gas companies Tullow Oil and Capricorn Energy have reached an agreement to merge their businesses in an all-stock deal worth $826.7m.

Under the terms of the agreement, Capricorn shareholders will receive 3.8068 new Tullow shares for each share they own.

The combined company is expected to have a production capacity of nearly 96,000 barrels of oil equivalent per day.

Led by Tullow chief Rahul Dhir, it will be owned 53% by Tullow shareholders, while Capricorn shareholders will hold the remaining stake of 47%.

In a joint statement, the companies said: “The boards of Tullow and Capricorn believe the combination has compelling strategic, operational and financial rationale, with the ability to deliver substantial benefits to shareholders, host nations and other stakeholders.

“The combination represents a unique opportunity to create a leading African energy company, listed in London, with the financial flexibility and human resource capability to access and accelerate near-term organic growth, add new reserves and resources cost-effectively, generate significant future returns for shareholders, and pursue further consolidation.”

The merged entity, with reserves of 343 million barrels of oil equivalent, is anticipated to have a new name. It is also expected to result in $50m savings.

Dhir was quoted by Reuters as saying: “What would the combined company do that we can’t do independently? One is we would have a different capital programme, which would… have acceleration in it.”

A significant part of the combined company’s reserves and production will come from Tullow’s offshore oilfields in Ghana.

In February last year, Tullow Oil has agreed to sell its oil producing assets offshore Equatorial Guinea and the Dussafu asset in Gabonese waters to Panoro Energy for a total of up to $180m.