Tullow Oil raises hopes on refinancing deal

Tullow Oil said it was confident of reaching a “mutually satisfactory” refinancing agreement with lenders by the end of June but warned that failure to secure a deal could lead to a “significant risk” of insolvency proceedings.

The Africa-focused oil company, which is still dealing with the fallout from a torrid 2019, is in negotiations with existing and new lenders to try to secure its future after forecasting a liquidity shortfall in April 2022, when it is due to repay $650m of senior debt.

Under terms attached to a key lending facility, Tullow has to prove at twice-yearly tests that it will have sufficient funds to meet its financial commitments for the following 18 months. It has submitted information to lenders that it believes will satisfy the requirements of a test that was due last month but faces further redeterminations in September and March 2022, for which it is forecasting “a potential failure of these tests”.

The group, which has been led since July by Rahul Dhir after its previous chief executive Paul McDade departed at the end of 2019, has been in discussions over the possibility of raising fresh funds or adjusting the terms and maturity dates of its existing loans. Its net debt stood at $2.4bn at the end of 2020.

Dhir has promised to update the market on the refinancing talks by the end of June but the company on Wednesday presented its full-year financial statements on a going concern basis reflecting “the board’s confidence in the group’s ability to implement a refinancing proposal”.

This was despite the inclusion of a warning that if no refinancing proposal has been implemented by September, and refinancing discussions are no longer continuing by then, “there would be a significant risk of the group entering into, or being in, insolvency proceedings”.

Tullow is still trying to recover from a tumultuous 2019 when it was forced to slash production forecasts. Dhir is refocusing the business on its core assets off the coast of Ghana and has identified significant drilling opportunities to try to recover more oil from its important fields, Jubilee and TEN. Tullow has also taken an axe to costs.

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Its turnround efforts will be helped by the recovery in oil prices, which this week rose above $70 a barrel for the first time in 14 months. Prices dropped to multi-decade lows in the first half of last year as the coronavirus crisis triggered a plunge in energy demand.

Tullow said every $10 per barrel increase equated to a $100m rise in cash flow up to $75 a barrel, helping it to accelerate its debt repayments. “It’s a good outcome from a refinancing perspective,” Dhir said.

Al Stanton, analyst at RBC Capital Markets, said that although the oil price was “providing tailwinds”, he remained cautious over the company’s prospects as “management has a long to-do list”.

Tullow made a $1.3bn pre-tax loss in 2020, although this was an improvement on $1.7bn the prior year.