Sunday 25 February 2018

Shares in Tullow fall on $300m bond offer

Aidan heavey, Tullow Oil. Photo: Mark Condren
Aidan heavey, Tullow Oil. Photo: Mark Condren
John Mulligan

John Mulligan

Embattled Anglo-Irish explorer Tullow Oil, which is headed by Aidan Heavey, has raised $300m via a convertible bond offering that will be used to help finance its capital investment in west and east Africa.

Its shares slumped over 15pc as investors digested the news.

Tullow said the offering would diversify its sources of funding and give it access to a new investor base.

The company has been hit hard by the rout in oil prices. It posted a pre-tax loss of $1.3bn in 2015, compared to a $2.04bn loss in 2014. Its revenue fell 27pc to $1.6bn last year, and its share price is currently about a quarter of what it was two years ago.

The company is cutting $500m in costs under a three-year restructuring programme. It has also axed about 40pc of its staff.

"The proposed convertible bond issue will further diversify Tullow Oil's sources of funding and give the company access to a new investor base," according to chief financial officer Ian Springett. "As per our most recent trading statement, our focus will continue to be on strengthening the balance sheet and deleveraging the business."

Tullow Oil's huge TEN project off the coast of Ghana, where it is the lead operator, is due to deliver its first oil within the next two to five weeks.

Tullow owns a 47pc stake in the TEN field. It has a 35pc holding in the huge Jubilee oil field, which is also offshore and close to the TEN project.

Tullow had net debt of $4.7bn at the end of June.

Its capital expenditure this year is estimated at $1bn, which a huge chunk of that connected to the development of the TEN field, which is expected to produce about 80,000 barrels of oil a day.

In the first half of 2016, Tullow's west Africa working interest oil production averaged 51,900 barrels of oil a day. That was below previous guidance, with output at the Jubilee field having been affected by a technical issue. Gross production in June jumped to about 90,000 barrels a day, however.

The company also extracts gas in Europe, where production in the first half of the year averaged about 6,800 barrels of oil equivalent a day.

Tullow also undertakes exploration activity in Kenya, and is also operational in South America.

Despite Tullow's shares falling yesterday, RBC Capital said that its shares could be boosted later in the year, as the firm is "turning a corner".

RBC pointed out that Tullow will realise a material increase in production and free cash flow during the second half of 2016 as the TEN project comes on stream.

In April, the oil producer announced its lenders had agreed to extend a revolving loan facility by a year and to increase flexibility on another, helping Tullow keep its finances in order amid weak crude prices.

"The fact that the company needs $300m after the recent reassessment of its borrowing facilities is a bit of a surprise to us," said analysts at Stifel, who recommend selling Tullow shares.

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