It didn’t take Tullow Oil investors long to get over news in December that the Irish-founded company had been jilted by a second would-be partner in a little over two years.
While the stock slumped almost 20 per cent over five days of trading before markets took a break for Christmas, it would rally strongly into the early days of the new year.
A tie-up with US oil and gas group Kosmos Energy would have undone efforts by Tullow in recent years to lower its borrowings. Kosmos’s debt burden, relative to earnings, was twice that of Tullow’s. A deal would have resulted in a group with more than $4 billion (€3.55 billion) of net borrowings.
Fuel was added to the stock when it emerged in the early days of January that an international arbitration organisation had ruled the company did not owe $320 million of certain taxes that had been charged by the government of Ghana, home of the company’s prized Jubilee and TEN oil and gasfields.
It didn’t last long. The shares have slumped almost 45 per cent since then and are currently changing hands at levels last seen five years ago.
Lower-than-expected production and cash flow forecasts issued by the group in late January were followed two months later by the release of profits that came in at a fifth of analysts’ expectations, driven by the explorer writing off more than $200 million of exploration costs.
Donald Trump has also played his part, with his chaotic approach to tariffs last month igniting fears of a global recession – and leading to a slump in oil prices.
[ Tullow Oil profit misses estimates amid €197m in asset chargesOpens in new window ]
The sell-off in oil – which remains the dominant source of energy globally, whether we like it or not – was exacerbated last weekend when Opec+ nations, consisting of members of the Organization for the Petroleum Exporting Countries and other oil producers, decided to ramp up output to defend the cartel’s market share even as demand wanes.
Brent crude has plunged 15 per cent since Trump’s “Liberation Day” speech and is currently hovering below $64 a barrel. While this is up from lows earlier in the week, it’s four years since oil was trading at these prices.
The big problem for Tullow is that it has $1.4 billion of bonds falling due in exactly 12 months’ time. The increased risk the group faces in refinancing these loans – and replacing, more pressingly, a $250 million debt facility that expires next month – prompted S&P Global to cut its rating on Tullow by one notch last month to CCC+, which is seven rungs deep into junk status.
S&P reckons brent crude will average $65 a barrel this year, resulting in Tullow generating “minimal free operating cash flow”. Not what the company needs when it faces a massive debt maturity. Analysts elsewhere have been more active with their red pens this week, with the likes of Goldman Sachs now talking about it averaging $60 this year before falling to $56 in 2026.
The past 10 years have been a lost decade for Tullow, a company set up in the mid-1980s by former Aer Lingus accountant Aidan Heavey with money raised from family and friends to rework some old gasfields in Senegal on the west coast of Africa.
In late 2000, Tullow bought producing gasfields in the North Sea from BP, before doubling in size four years later with the takeover of Energy Africa, giving it assets in countries from Ghana to Namibia along the west coast of Africa. Tullow’s takeover in 2007 of Australia’s Hardman Resources boosted its position in Uganda, a landlocked country in east Africa, and helped propel the group into the FTSE 100.
Spare a thought for group chief financial officer Richard Miller, who’s also been double jobbing as interim CEO for the past three months
All was going well until the price of crude oil, which peaked at $115 a barrel in 2014, began to fall – sending Tullow’s share price tumbling.
The company, which crashed out of the FTSE 100 in 2015, saw its net debt peak at $4.8 billion at the end of 2016. Heavey exited the company two years later. The stock would spiral downwards in the years that followed, amid a series of drilling and production disappointments, executive exits, massive asset writedowns and warnings about potential cash shortfalls. It closed its Dublin office in 2020 and quit the Irish stock market in 2022, although it retains a following among retail investors here.
Asset sales and cost-cutting – together with higher oil prices – had helped Tullow pull off a $1.8 billion debt refinancing in 2021 and chip away at its debt mountain.
It has upped the ante this year, agreeing in March to sell its assets in Gabon in west Africa for $300 million, and, more recently, striking an accord last month to offload its exploration assets in Kenya, where Tullow had long struggled to secure project approvals from the local government and a strategic partner, for $120 million.
The deals are expected to result in upfront cash payments this year of $340 million, which will help meet some of the debt maturities – but mark the end of Tullow’s pan-African ambitions as it focuses on its producing fields off the Ghana coast.
Investor concerns about the May 2026 bonds are best captured by the market performance of the notes themselves. Having been trading at about 95 cents on the dollar in January, they have since fallen to close to 75c.
Spare a thought for group chief financial officer Richard Miller, who’s also been double jobbing as interim CEO for the past three months.
