Tullow Oil Agrees Refinancing with Glencore and Some Bondholders

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(Bloomberg) — Tullow Oil Plc has reached an agreement with some bondholders and lender Glencore Energy UK Limited that would allow the Africa-focused energy company to delay a looming debt repayment and boost its liquidity.

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The cash-strapped oil and gas firm is due to repay a $1.3 billion bond in May and had been locked in negotiations for months with creditors about restructuring its debt. The agreement announced Friday has the support of around two-thirds of its bondholders and Glencore, which previously provided a $400 million lending facility.

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Tullow borrowed heavily to develop major oil discoveries but struggled to bring fields onstream and to expand beyond its legacy West African assets. The deteriorating credit quality of the business made a straight bond market refinancing difficult, and other efforts to find funding, including selling its Kenyan fields and offloading assets in Gabon, didn’t yield enough. 

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The proposed refinancing, which needs the support of more than 90% of bondholders if court hearings are to be avoided, involves Tullow paying down at least $100 million of its bonds and extending the remainder to November 2028. 

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The price of Tullow’s bond jumped some 5.7 cents after the agreement was announced and is now marked at around 85 cents on the dollar, according to data compiled by Bloomberg. Shares dropped as much as 4% after jumping 23% on Thursday. The stock plunged to a record low last November on concerns about the company’s financial position.

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While the cash interest rate on the extended bonds will remain at 10.25%, they will also carry 3% “payment in kind” interest, which can be added to the amount to be repaid at maturity, rather than paid quarterly. In addition, Tullow will owe a 1.75% “pay if you can” rate, interest that is paid in cash if certain tests are met or added to the amount owed at maturity.

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Meanwhile, the Glencore facility will be replaced by junior notes due in May 2030, also carrying payment in kind interest. Glencore will provide Tullow with immediate liquidity in the form of a new $100 million super senior cargo prepayment facility. Following the refinancing transaction, Tullow said it expects to have free cash and undrawn facilities of more than $200 million.

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Tax Dispute

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Attempts to raise cash by selling assets have encountered challenges. Tullow said Friday that the Kenya Revenue Authority has assessed that $170 million in “unpaid” VAT and capital gains tax is due on the sale of its Kenyan business. Tullow added that it believed the estimate to be “wholly without merit” and it would contest it. Proceeds from the disposal have also been delayed; Tullow now expects to receive the second of three $40 million instalments in the first quarter of this year, or by the end of June at the latest.

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In a trading update, the company said it expects oil production of between 34,000 and 42,000 barrels a day in 2026, compared with around 40,400 barrels a day last year. Five wells are due to come onstream at its Jubilee field in Ghana. 

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Tullow extended agreements with Ghana covering its legacy fields by four years to 2040 and signed an agreement to buy a floating production and storage vessel for the TEN fields for $205 million. The company has taken other measures to stabilize the business, including appointing former Trafigura Group executive Roald Goethe as chairman. On Friday, it said it would appoint three new independent non-executive directors.

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