Tuesday 28 February 2017

Heavey's Tullow Oil may need to raise up to $750m

Sarah McCabe

Sarah McCabe

Tullow Oil chief executive Aidan Heavey
Tullow Oil chief executive Aidan Heavey

An equity raise by Aidan Heavey's Tullow Oil looks more likely after a leading oil industry expert called on the company to raise money fast.

Tullow will need to raise up to $750m (€665m) and sell of some of its biggest assets just to survive, according to Investec.

More than £2bn has been wiped off the exploration company's value in 2015 as the cost of a barrel of oil went into freefall. Goldman Sachs warned on Friday that global oversupply in the oil market is even more dramatic than expected and could push prices to as low as $20 a barrel.

"Tullow has reached a tipping point," said UK-based Investec oil and gas analyst Brian Gallagher. "We see recapitalisation followed by an asset sale as the only way to correct Tullow's flagging investment case."

"Half measures at this juncture just won't do. Tullow needs to raise a significant chunk of change (circa $750m) and exit East Africa in order to fully deleverage. An equity raise on its own would not derisk the balance sheet or correct the investment case. Equally, asset sales without a strengthened balance sheet are unlikely to yield competitive pricing. A raise followed by an asset sale is therefore the only option, in our view."

Investec, HSBC and Jefferies all cut their target share price on Tullow stock in the past few days. While HSBC highlighted concerns around its liquidity situation, analysts said it is "manageable".

Earlier this year, comments by Tullow's management suggested the mid-cap oil company could technically breach some of its financial covenants next year, but such concerns have since been allayed after agreements were reached with lenders.

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