West Africa-focused Tullow Oil will acquire Capricorn Energy in an all-stock deal valued at £656.9m, the two companies said, as they focus on the reserve-rich African region.

Investors in Capricorn, formerly known as Cairn Energy, will receive 3.8068 Tullow shares for each share they hold, and will own 47% of the combined group which will be led by Tullow chief executive Rahul Dhir.

"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," the companies said.

The larger group will have portfolios across countries like Ghana, Egypt, Gabon and Ivory Coast and is expected to be an important supplier of gas in Egypt and in Ghana, the companies said.

They also expect to save $50m annually within two years of the completion of the deal, which has been unanimously recommended by the boards of both the companies.

Morgan Stanley and Rothschild & Co were Capricorn's financial advisers on the deal, while PJT Partners and Barclays advised Tullow.