Tullow Oil to sell $650m of bonds to refinance near-term debt

Oil and gas explorer’s net debt fell by over $1.3bn last year to $3.5bn

Tullow Oil chief executive Paul McDade

Tullow Oil chief executive Paul McDade

 

Tullow Oil said on Monday it plans to sell $650 million (€527m) of seven-year bonds to refinance the same amount of debt that is due to be repaid in 2020.

The move comes Standard & Poor’s (S&P), one of the world’s top three credit ratings agencies, raised its stance on the Tullow Oil by one level to ‘B+’, which remains four levels off what it considers to be investment grade.

The oil and gas explorer’s net debt fell by over $1.3 billion last year to $3.5 billion with the help of $790 million raised through the sale of stock in a rights issue offering to shareholders last April. In November the completed a $2.5 billion bank debt refinancing.

The deal was helped by resolution in September of a maritime border dispute between Ghana and the Ivory Coast which enables Tullow to resume drilling new wells in its key TEN oil field, which went into production in August 2016.

The company, led by chief executive Paul McDade after founder Aidan Heavey stepped into the chairman role last April, reported a surprise €18 million operating profit last year and is now targeting east Africa as its next frontier.

S&P said it expects that a recovery in oil prices, with Brent oil futures having surged 44 per cent over the past nine months to about $64.70, should help Tullow hasten the pace at which it is lowering its debt burden.

“The upgrade follows Tullow’s balance-sheet deleveraging process, which started in 2017 and will likely accelerate this year,” said S&P. “In our view favourable year-to-date oil prices and our oil price assumption for the rest of 2008 [$60 per barrel versus our previous working assumption of $55], proceeds from agree divestments and cost-cutting initiatives underpin the current positive momentum.”

S&P estimates that Tullow will generate $700 million of free operating cash flow this year, including proceeds from the sale of its stake in its project in Uganda, agreed last year, up from a previous estimate of about $400 million.