Tullow Oil has unveiled plans to raise £607 million (€695 million) through a share sale offered to existing shareholders at a deeply discounted price as it seeks to cut its debt burden.
The planned sale of 466.93 million shares at £1.30 each – known as a rights issue, as the stock is being offered to exiting investors – has been priced at a 45.2 per cent discount to Tullow’s closing price on Thursday. Shares in the London-headquartered company fell almost 15 per cent on Friday morning to as low as £2.02, valuing the group at £1.85 billion.
The move comes as the company's founding chief executive, Aidan Heavey, prepares to hand over the reins to his current chief operating officer Paul McDade at the start of next month. Mr Heavey, who turned 64 this week, will become chairman of the company for up to two years.
“Tullow and its staff have worked exceptionally hard over the past three years to re-set the business comprehensively in the face of the toughest conditions I have known in the oil sector,” said Heavey.
“This is the right time to get our balance sheet in order and this offering will give Paul and the management team the necessary financial and operating flexibility to growth the business even if oil prices remain low.”
Market value
The market value of Tullow plunged, along with other oil companies, as crude oil prices fell from a high of $115 a barrel in 2014 to below $28 in January last year. However, a rebound in the price of oil since then to about $52 a barrel – helped by an agreement by major oil producing countries to cut supply – triggered a doubling in Tullow’s share price, before the rights issue was announced.
"Following the transaction, we expect 2017 net debt will fall to circa $3.7 billion," said Citigroup analysts in a note to clients on Friday, noting that this would cut the company's debt to 3.5 times earnings from a ratio of 4.2 previously. It will also help Tullow move towards its long-term target of below 2.5, the investment bank said.
The share sale has been underwritten by banks leading the deal, Barclays , JP Morgan, Morgan Stanley, BNP Paribas, Crédit Agricole CIB and Société Générale.
Meanwhile, Tullow also disclosed on Friday that Chinese oil giant CNOOC has muscled in on the company's previously-announced deal to sell 21.6 per cent of its 33 per cent interest in the so-called Lake Albert Development Park in Uganda to French group Total for a consideration of $900 million.
CNOOC, which already has a stake in the project, has decided to take up its pre-emption rights to buy half of the interest being transferred to Total, on the same terms and conditions.
Eventful
The share sale caps off an eventful nine months for Tullow, which has seen the company's TEN project off Ghana begin to pump oil for the first time, while its flagship Jubilee project, also off Ghana's coast, suffered technical issues on its floating production, storage and off-loading vessel.
Tullow said the equity raise will help it explore for more fuel around the Jubilee and TEN fields, as well as Kenya and other prospects across its portfolio. It would also allow the company to "take advantage of other opportunities that industry conditions offer," it said.
