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UK-based exploration company Tullow Oil announced today that it has issued a convertible bond to the tune of US$300 million maturing in 2012. The announcement hit Tullow’s stock in morning trade on the London Stock Exchange, causing it to drop by as much as 11 percent.
The proceeds from the issue will be used for general corporate purposes, the company said, and for funding its investments in Africa.
The senior unsecured debt instruments will carry a coupon of between 5.875 percent and 6.625 percent that will be paid twice a year, in January and July. The conversion price of the bonds will initially be set at a premium of 3-35 percent above the volume weighted average of Tullow’s stock price on the LSE between today’s open and close.
The oil and gas explorer’s finance chief said that the bond issue will provide the company with a more diverse investor base and aid it in its efforts to strengthen its balance sheet, which has suffered the impact of the commodity price decline.
Tullow Oil reported a pre-tax loss of GBP1.3 billion (US$1.7 billion) for 2015, with sales down 27 percent on 2014, as the prices dived near rock bottom. This was the second consecutive year in the red for Tullow Oil, aggravating its debt servicing capacity.
Related: Why An Oil Price Crash Remains Unlikely
The company slashed its workforce by 37 percent in response to the bad performance and pledged to cut capex to some US$300 million in 2017, from US$1.1 billion this year. This latest debt issue was probably seen by market participants as a desperate effort to stay afloat, hence the stock decline.
On June 30, the company warned that it expected its earnings for the first half of the year will be lower, not least because of a palpable 24 percent drop in daily output. This should change before the end of the third quarter, however, when Tullow Oil commissions a new project off the shore of Ghana.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.