- Tullow is facing a £1.4bn debt burden, and its market capitalization has fallen from £15bn to £379m.
London-based Tullow Oil is set to acquire US rival Kosmos Energy after talks between the two.
Both companies responded to media inquiries overnight in separate statements, confirming the potential for a full acquisition but no guarantee of a formal release.
The West Africa-focused power producer is fighting to overcome a huge debt pile, which it expects will be down to $1.4 billion by the end of the year.
Tullow has seen its value drop from £15 billion at its 2012 peak to a market capitalization of just £379 million today, according to LSEG data.
The team managed to win major oil field discoveries in Ghana and Uganda during the fall, but eventually gave up. The numbers increased after several unsuccessful exploration attempts.
Global competition against the net has also become increasingly fierce, with Tullow in recent years ceasing its exploration activities to focus on managing existing assets properly.
Shares were also sent down last month when Tullow lowered its free cash flow forecast, amid idleness at its Jubilee field in Ghana.
A Tullow oil rig on the Jubilee field, off Ghana.
Tullow’s current strategy is to have net debt of less than $1 billion by 2025 and a cash flow of under 1x in the near term.
Kosmos is a leading carrier with production and exploration opportunities offshore Ghana, Equatorial Guinea and the deep-sea US Gulf of Mexico.
Kosmos, which has $2.7 billion of net debt, pumped 65,400 barrels of oil equivalent per day in the third quarter, compared with Tullow’s production of 63,700 barrels for the first half of the year.
Shore Capital analyst James Hosie said: ‘Both companies have the same assets – the Jubilee and TEN fields outside Ghana – so the country is well managed and Kosmos has an understanding of opportunities in real estate.
‘The transaction gives Kosmos control of both fields and creates opportunities for joint ventures.
‘From Tullow’s point of view, the potential tie-up with Kosmos is the way to fix its balance sheet and the need to refinance $1.3 billion of fixed term loans by 2026.
‘Overall, we see the main obstacle to agreeing a deal is finding a structure that satisfies the shareholders and the debts of both companies, leaving the business with a solid capital structure.’
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