Tullow Oil’s shares soared on Friday as investors digested the Irish-founded explorer’s victory in a major Ghana tax case, which will help the company as it goes about refinancing $1.4 billion (€1.36 billion) of debt, according to analysts.
Shares in Tullow jumped by as much as 13 per cent in early trading in London.
The company announced after European markets closed the previous evening that a major international arbitration organisation had ruled that the Africa-focused company will not have to pay a $320 million (€311 million) tax bill that the Ghana government had presented to it.
The International Chamber of Commerce (ICC) ruled that so-called branch profit remittance tax (BPRT) did not apply to Tullow’s operations in the Deepwater Tano and West Cape Three Points fields offshore Ghana.
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BPRT is a tax on the profits that a foreign business makes in a country and then remits, or transfers, back to its parent company abroad.
Tullow is still in discussions with the government of Ghana to resolve two other tax claims.
“Tullow has a $1.4 billion bond maturing in May 2026 with an annual coupon of 10.25 per cent. We expect it to refinance this bond in 2025, and the removal of the BPRT contingent liability has improved its ability to do this,” said Colin Grant, an analyst with Davy.
“Tullow remains committed to Ghana, and the resolution of the BPRT tax case does not impact its ongoing operations there.”
Ashley Kelty, an analyst with Panmure Liberum, said: “The removal of a further liability will take some pressure off the stretched balance sheet, although investors will still be keen to see some significant deleveraging this year.”
The rally by Tullow’s shares have brought them back to levels seen in the middle of last month, before a potential suitor, US oil and gas group Kosmos Energy, walked away from making a bid. Kosmos announced on December 17th that it had dropped its interest in an all-stock merger, less than a week after both companies had said they were in early talks for a potential deal.
Stock dealers said at the time that investors in both companies were concerned about the $4 billion of combined debt the merged entity would have.
News of Kosmos’s interest last week came days after Rahul Dhir said he was stepping down as chief executive of Tullow.
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.
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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