Tullow Oil on Brink as Debt Crisis Deepens

A London listed oil explorer once heralded for its global ambitions faces the threat of default after years of mounting debt. Tullow Oil, once a stalwart of the FTSE 100 and famed for its discoveries from Africa to South America, now finds itself under severe financial pressure with a major bond repayment looming.

Credit experts have raised the alarm as Tullow must repay a staggering $1.3bn bond in May next year, against a cash reserve of less than $200m. The company’s daunting position has prompted a fresh credit downgrade from S and P Global, moving Tullow’s rating from CCC plus to CCC, further into junk territory and risking an increase in its already heavy borrowing costs.

S and P’s latest assessment was grim, stating there are significant doubts about Tullow’s ability to meet its obligations and warning of heightened refinancing risk. The prospect of a further downgrade remains, should the company’s liquidity continue to deteriorate. Analysts predict Tullow is set to outspend its income this year by roughly $100m, a pattern deepening its cash squeeze and exposing creditors to possible default scenarios.

Founded by entrepreneur Aidan Heavey in the town of Tullow south of Dublin, the company grew rapidly on the back of expansion and high profile exploration. However, an aggressive acquisition strategy and the costs of developing trophy assets have left Tullow with an unsustainable debt load. Once commanding a market capitalisation of over £14bn, its shares have now plummeted to below 11 pence and the business is valued at just £155m, reducing it to effective penny stock status.

In recent months, Tullow has been forced into selling key assets in Kenya and Gabon to bolster its coffers and meet creditor demands. The proceeds from these disposals are being channelled into debt repayments. After these strategic exits, Tullow’s operations are mainly concentrated in Ghana, supplemented by smaller projects in Côte d’Ivoire.

Despite the financial turmoil, the company remains tight lipped on the details of its rescue efforts. A spokesman stated that Tullow is making progress on refinancing its capital structure and is currently evaluating a range of options. Investors and creditors alike will be watching closely in the run up to May as Tullow endeavours to secure its future and avoid default.