Tullow Oil shares soar after Opec agrees deal
London-headquartered company is preparing to refinance bank facilities next year
Tullow chief executive Aidan Heavey. The company’s shares surged as much as 13.3% in London. Photograph: Nick Bradshaw
Tullow’s shares surged 13.3 per cent in London, lifting its market value to £2.7 billion (€3.2 billion) as investors cheered news that the Organisation of Petroleum Exporting Countries agreed to reduce production by 1.2 million barrels a day to 32.5 million, sending Brent crude prices soaring as much as 8.88 per cent to above $50.46 a barrel in London.
The deal comes as Tullow, which expects to end this year with about $4.9 billion of net debt, prepares to refinance more than $3 billion of bank facilities next year.
“There’s a big relief rally as a result of the Opec decision,” said Job Langbroek, an analyst with stockbroker Davy. “It makes it a lot easier to have a discussion [on refinancing]. While the news is good for the oil sector, it is particularly good news for independent companies and particularly, particularly good news for those that are leveraged.”
Elsewhere, UK peer Premier Oil, which has $2.8 billion of net debt, jumped by 18.4 per cent in value. Investors in the company had already taken huge comfort before the Opec meeting from news that Premier’s lenders had agreed to defer a financial stress test.
Premier’s creditors have been fairly lenient as the FTSE 250-listed company works on a refinancing deal, having deferred tests of its financial covenants several times in recent months.
Meanwhile, another analyst who follows Tullow Oil, who asked not to be identified, said the company, led by chief executive Aidan Heavey, may seek to turn to bond markets next year if oil prices hold up.
This would allow it to replace some of its existing bank facilities with market-based funding.
The company said in a trading update on November 9th that the first flow of oil from the so-called TEN project off the coast of Ghana in August will help the group to start to generate free cash flow in the current quarter and begin the process of “deleveraging” its balance sheet.