Tullow Oil is in talks to be taken over by Dallas-based Kosmos Energy, in a potential deal that would end the Irish-founded explorer’s 40-year history as an independent company.
Tullow is in “preliminary discussions with Kosmos Energy regarding a possible all-share offer by Kosmos for the company,” it said in a statement. “There can be no certainty that any offer will be made,” it added.
News of the potential deal comes a week after Rahul Dhir said he was stepping down as chief executive of Tullow.
Under UK rules, Kosmos has until January 9th to make a bid for London-listed Tullow or walk away, it said.
Tullow shares jumped after the announcement before falling back sharply. By lunchtime in London the shares were down 9.3 per cent, giving the firm a market capitalisation of £346 million (€416 million).
“The negative share price reaction on both stocks suggests that creating a [circa] $2 billion [€1.9 billion] market cap [explorer and producer] with over $4 billion of net debt may be too much for investors to swallow, despite the obvious operational synergies,” David Mirza, an analyst with SP Angel wrote in a research note. “Missed production targets have weighed on both share prices this year and with significant debt still on the balance sheet, we think there is limited room for surprises compared to peers given the outlined capital allocation policy.
“We expect other groups to also take an interest in Tullow’s operated portfolio, including private players such as Trident Energy and Carlyle, which should also benefit from the outcome of the Ghana tax arbitration later this month,” he added.
Tullow’s net debt peaked at $4.8 billion at the end of 2016. The company saw its share price plunge about 85 per cent in the 18 months before Mr Dhir took charge in 2020, amid a series of drilling and production disappointments, exits of its then chief executive and exploration director, massive asset writedowns and warnings about potential cash shortfalls.
Asset sales and cost-cutting – together with higher oil prices – had helped Tullow pull off a make-or-break $1.8 billion debt refinancing in 2021 and chip away at its debt mountain, but it will still need to refinance about $1.3 billion of bonds due to mature in 2026
Tullow, which was founded by one-time Aer Lingus accountant Aidan Heavey in 1985, closed its Dublin office in 2020 as part of a round of corporate restructuring and quit the Irish stock market last year. It had moved its domicile to the UK two decades ago.
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