Tullow Oil’s almost $1.3 billion (€1.1 billion) of bonds have fallen to 72 cents on the dollar amid mounting concerns over its ability to refinance the debt before it falls due in five months.
Moody’s, a leading global debt ratings agency, this week downgraded its stance on the Irish-founded explorer’s creditworthiness deeper into junk status, saying a default – possibly through a deal to get bondholders to extend the maturity date of the bonds – “is now very likely”.
The risk of creditors not recovering all that they are owed is also increasing, it warned.
The bonds have slumped from almost 96c on the dollar earlier this year as Tullow’s financial position worsened. The company said three weeks ago that uncertainty surrounding its performance and the market led it to push forward with “alternative options with certain of its creditors, including an amend and extend exercise and other forms of liability management transactions”.
Liability management exercises are manoeuvres to rework debt structures outside of court, sometimes involving creditors exchanging their bonds for notes of lesser value and with a longer-dated maturity.
“We believe a default, for example a distressed exchange under our definitions of default, is now very likely ahead of the backed senior secured notes maturity in May 2026, and with an increased risk of losses for creditors,” Moody’s warned.
Shares in the company have plunged 72 per cent in London this year to 6.1 pence, leaving it with a market value of £91 million (€104 million).
Founded in the 1980s by ex-Aer Lingus accountant Aidan Heavey, using money from family and friends to revive old Senegalese gasfields, the company came crashing out of the FTSE 100 in 2015. Debt ballooned to $4.8 billion by 2016; Mr Heavey left two years later.
Since then, the stock has nosedived, hit by failed drilling campaigns, production setbacks, executive changes, large writedowns and cash crunch warnings. Tullow shut down its Dublin office in 2020 and exited the Irish stock market in 2022. Still, the group continues to have a number of Irish retail investors.
A mix of asset sales, deep cost cuts and surging oil prices helped the company pull off a $1.8 billion debt refinancing in 2021 and start chipping away at its substantial liabilities.
The company, which appointed oil industry veteran Ian Perks as its fourth chief executive in six years, expects to end this year with net debt of $1.2 billion.
Now focused entirely on its Jubilee and TEN oilfields off the Ghana coast – after selling its assets in Gabon (raising $300 million) and Kenya (in a deal worth up to $120 million) this year – Tullow downgraded its 2025 production twice in the past five months. Oil prices have also come back this year, with Brent crude having fallen almost 17 per cent to about $61.40 a barrel.
Tullow said last month that production in 2026 “will be dependent on a number of factors, including production from new wells helping to offset the natural decline from existing well stock”.