Tullow Oil Seeks Lower Borrowing Costs After Historic Crude Export

Refinancing Plans and Market Context

According to people familiar with the situation, Tullow Oil Plc is considering a new debt refinancing effort, taking advantage of its recent restructuring and lower borrowing costs in the current market. "We are evaluating all options to improve our capital structure," a company spokesperson said, adding that the firm is well positioned to act on favorable conditions.

The company declined to comment further via email.

The Africa-focused oil and gas producer has seen a dramatic turnaround in recent months. In a June trading update, Tullow stated it expects to generate "significant" free cash flow this year and confirmed it obtained $130 per barrel for a crude cargo sold in April. Shares of independent producers such as Tullow and Kosmos Energy Ltd. have surged more than 100% this year, driven by higher oil prices resulting from supply disruptions tied to the Iran conflict.

The improved outlook is a sharp reversal from the company's recent struggles. Tullow took on substantial debt to fund oil field development, but those fields started production later than expected, which resulted in a $1.3 billion bond due in May, combined with declining output - blocking a conventional refinancing path. The restructuring that concluded in April was a critical step, extending maturities on roughly $1.2 billion of bonds and replacing a Glencore loan with new notes.

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The company also obtained a cargo prepayment facility to support working capital. Since then, stronger cash flows from higher oil prices have improved its financial flexibility, making cheaper refinancing a realistic goal.

Options on the Table

Tullow's management sees refinancing as the best way to handle its substantial and costly debt, but it is also considering a sale of the company or its assets, the people said, and has formed a committee to manage that review.

The company spent several months in negotiations with creditors before finalizing a debt restructuring in April.

Debt Securities and Springing Maturity

Since then, the company's improved outlook has sparked a rally in its debt securities. According to Bloomberg pricing, debt securities from the April restructuring currently trade at a premium, around 102 cents per dollar.

The April restructuring was a critical step for Tullow. The deal extended maturities on roughly $1.2 billion of bonds and replaced a Glencore loan with new notes. The company also obtained a cargo prepayment facility to support working capital. Since then, stronger cash flows from higher oil prices have improved its financial flexibility, making cheaper refinancing a realistic goal.

Tullow's recent success reflects a broader recovery for independent oil explorers that struggled with high debt during the pandemic. The company's ability to refinance at cheaper rates hinges on sustaining production growth and oil prices, which remain volatile amid geopolitical risks.

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