Glencore has signed up to provide a $400 million facility for Tullow Oil (LON:TLW), in addition to offtaking the operator’s oil cargoes in Ghana and Gabon.
Tullow can draw down on the funds for the next 18 months, while the facility from Glencore Energy UK will run for five years. Interest on the facility will be SOFR plus 10% on drawn amounts. SOFR is currently just over 5%.
Tullow intends to use the Glencore debt for “liability management” on its senior notes, which mature in March 2025.
The marketing and offtake contract covers Tullow’s oil from the Jubilee and TEN fields, in Ghana, and its Rabi Light crude in Gabon.
“Glencore’s $400 million facility commitment is a strong endorsement of our business plan and strategy,” said Tullow CEO Rahul Dhir.
“Today’s announcement demonstrates our ability to access long term capital from a variety of sources and this facility is a material step in our refinancing strategy, following the successful and equity accretive tender offer in June.”
Dhir said the Glencore debt and Tullow’s cash, in addition to $800mn of free cash flow from 2023 to 2025, would “allow us to fully address all outstanding 2025 notes”.
The financing also “positions [Tullow] for a successful refinancing of the 2026 notes”, he said.
Glencore’s oil CEO Alex Sanna welcomed the agreement with Tullow. “This facility is a strong endorsement of Tullow’s business plan and strategy, and demonstrates Glencore’s capability in structuring finance solutions across the oil and gas sector.”
Number crunching
In September, Tullow reported outstanding senior notes due in March 2025 had a $633mn nominal value. Total debt is $2.2 billion.
The company bought back $167mn of its notes in June for $100mn. While the move was advantageous for Tullow, its bond analysts saw the move less favourably.
Standard & Poor’s (S&P) and Moody’s both took action on Tullow’s credit rating. S&P cut it to CCC+, from B-, and also cut its rating on Tullow’s $1.6bn of senior secured notes due in 2026. Moody’s applied a limited default designation to its rating, but only for three days.
S&P was concerned that Tullow would buyback more of its debt at below par value. The agency also expressed the view that Tullow required favourable financial markets to refinance.
The 2025 notes have a 7% rate, while the 2026 notes have 10.2%.
“This is a sensible move, and while the cost is higher, it does extend the maturity of [Tullow’s] debt, and takes pressure off in the near-term,” said Ashley Kelty of Panmure Gordon.
Recommended for you
