Troubled Tullow engages creditors over restructuring discussions for a $1.3 billion bond debt
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Tullow Oil, a UK-based oil and gas company, is actively engaging in discussions with its bondholders to refinance a $1.3 billion bond maturing in 2026. The company is making "good" progress towards simplifying and refinancing its capital structure during 2025, according to recent reports.
The refinancing talks involve potential amendments to the debt terms, with some bondholders already seeking legal counsel in preparation for formal negotiations. This move comes as Tullow Oil faces significant pressure due to its high debt levels, operational underperformance, and a challenging liquidity outlook ahead of the bond maturity.
Tullow Oil's net debt stands at approximately $1.5 billion as of late 2024, a figure that has added to the challenges the company is facing. Particularly, its Jubilee oilfield in Ghana has underperformed, contributing to the company's woes. Analysts have expressed a bearish outlook on Tullow Oil, citing falling production, softer commodity prices, and negative free cash flow as factors that complicate refinancing efforts and threaten the company’s financial stability.
In response, Tullow Oil has prioritised refinancing its capital structure for 2025, alongside efforts to optimise production, increase reserves, and sell assets to improve the balance sheet and raise proceeds for debt reduction. The company's management has also highlighted actions to mitigate operational underperformance and enhance production models at Jubilee, aiming to improve cash flow generation going forward.
The potential implications for Tullow Oil are significant. Successful refinancing could ease immediate liquidity pressure and extend debt maturities, allowing the company to stabilise financially and continue operating in West Africa. On the other hand, failure or delays in refinancing may increase default risk, potentially leading to asset sales under distressed conditions or restructuring. Refinancing terms may also impact shareholder value, with tougher covenant terms or dilution possible depending on negotiations with bondholders.
Tullow Oil's ongoing sale of Kenyan assets and recent divestment in Gabon are part of its strategy to raise funds for debt reduction. The company expects to receive $80 million from the sale of its assets in Kenya to Gulf Energy Ltd by the end of the year. However, these asset sales may impact production.
The approaching maturity of Tullow's senior secured bond in May next year has weighed on sentiment, leading to a downgrade by Moody's Ratings and S&P Global Ratings. Tullow Oil warned that full-year output may slump, sending its shares to their lowest since 2020 earlier this month.
Despite the challenges, Tullow Oil has a history of major African discoveries, becoming one of the UK's hottest independent oil explorers in the late 2000s. However, it has struggled to bring Kenyan fields onstream in recent years. As of June 30, Tullow Oil had $1.8 billion of drawn debt, with about $1.3 billion accounted for by its senior secured bond.
Tullow Oil declined to comment on bondholders working with Weil, Gotshal & Manges LLP. Weil, Gotshal & Manges also declined to comment. A spokesman for Tullow Oil stated that they are making good progress with plans to refinance and simplify the group's capital structure during 2025.
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