US president Donald Trump and the red caps may not have won over Oslo with their unseemly lobbying for the 2025 Nobel Peace Prize, but his Gaza truce and vow to tackle Ukraine next have swayed one crowd: oil traders.
The price of Brent crude oil slid as much as 5.5 per cent this week to $60.18 a barrel – nearing lows last seen in May and, before that, in early 2021.
Down 21 per cent so far this year, oil remained under pressure on Friday after the US president said he would hold a second meeting with Russian counterpart, Vladimir Putin, “within two weeks or so” aimed at ending the war in Ukraine.
If the upcoming Budapest bilateral succeeds – after August’s Alaska talks failed to halt Russian aggression – Trump supporters will surely ramp up pressure on the Nobel Peace Prize committee in Norway in advance of next year’s selection, following the win last week by Venezuelan opposition leader Corina Machado.
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But it also increases the possibility of the Opec+ oil-producing country adding to global oversupply.
It followed a warning from the International Energy Agency on Wednesday that the world oil market faces a surplus next year of as much as four million barrels a day – the equivalent of almost 4 per cent of demand – as Opec+ producers and rivals lift output even as the global economy, and by extension demand, remains weak.
It all couldn’t come at a worse time for Tullow Oil, the Irish-founded oil explorer, as it faces a make-or-break refinancing of $1.3 billion of debt that falls due in May. Highly indebted companies typically seek to replace maturing borrowings 12-18 months before they fall due to avoid becoming a hostage to their creditors.
Tullow’s 2026 bonds are changing hands at less than 84 cents on the dollar – down from almost 96 cents in January – reflecting concerns in the bond market that investors may not get all their money back.
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Bondholders haven’t been cowering behind their screens. Bloomberg reported last month that a group of them has tapped US investment bank Houlihan Lokey and law firm Weil, Gotshal & Mange, to advise them on their options as the maturity looms.
Large bondholders now include Astaris Capital Management, Caius Capital, Melqart Asset Management and Tresidor Investment Management – all opportunistic hedge funds focused on what’s known in industry jargon as “event-driven credit situations”. They’re not the kind of fellows a company likes to see mopping up its debt on the bond market.
Founded in the 1980s by ex-Aer Lingus accountant Aidan Heavey, using money from family and friends to revive old Senegalese gasfields, the company came crashing out of the FTSE 100 in 2015. Debt ballooned to $4.8 billion by 2016; Heavey left two years later.
Since then, the stock has nosedived, hit by failed drilling campaigns, production setbacks, executive churn, large writedowns and cash crunch warnings. Tullow shut down its Dublin office in 2020 and exited the Irish stock market in 2022, although a loyal band of retail investors still holds on.
A mix of asset sales, deep cost cuts, and surging oil prices helped the company pull off a $1.8 billion debt refinancing in 2021 and start chipping away at its substantial liabilities.
It’s not just declining oil prices that are weighing on Tullow, as most of that debt approaches maturity.
Now focused entirely on its Jubilee and TEN oilfields off the Ghana coast – after selling its assets in Gabon (raising $300 million) and Kenya (in a deal worth up to $120 million) this year – Tullow downgraded its 2025 production and free cash flow targets in August following a maintenance shutdown and higher than expected water levels coming out of certain Jubilee wells.
The company appointed oil industry veteran Ian Perks last month as chief executive – its fourth in six years. He brings 30 years of experience in oil and gas exploration and production, having held senior roles at big producers such as Anadarko Petroleum and TotalEnergies. He made his immediate focus clear in the announcement: “To put the company on a long-term sustainable financial footing.”
The job became harder when Standard & Poor’s (S&P), one of the world’s leading debt ratings agencies, downgraded its stance on Tullow’s creditworthiness by one notch to CCC – which is eight rungs deep into what’s known as junk status, and 17 levels below AAA – as risks of a cash crunch rise.
Ongoing pressure on oil prices heightens “refinancing risk and exposes the creditors to transactions that we could construe as tantamount to default”, said S&P.
Tullow has been the subject of tie-up talks with three potential partners in the past three years: Edinburgh-based Capricorn Energy, Texas’s Kosmos Energy, and, most recently, Toronto-listed Meren Energy. Each ended up going nowhere.
The Meren discussions collapsed during the summer against the backdrop of Tullow’s financial difficulties and oil price volatility. Tullow’s market value has been drained to £150 million – just a drop in the barrel compared to its almost £15 billion peak in 2012.
A Tullow spokesman insisted on Friday that the group “is making good progress with plans to refinance its capital structure and is evaluating a range of options”.
The longer it takes, the more those options narrow. And fewer are likely to involve Tullow remaining a listed entity for much longer.
