Tullow Oil faces takeover from US rival Kosmos Energy

London’s Tullow Oil could be acquired by larger US rival Kosmos Energy after the pair revealed preliminary discussions. 

The two companies responded to media speculation over night in separate statements, confirming the potential for an all-share takeover but noting there is no guarantee of a formal offer being made.

The West Africa-focused energy producer has been fighting to overcome an enormous debt pile, which it hopes to have reduced to $1.4billion by the end of the year.

Tullow has seen its valuation plunge from some £15billion at its 2012 peak to a market capitalisation of just £379million today, according to LSEG data.

The group was on a winning streak of major oil field discoveries in Ghana and Uganda during the noughties, but this abruptly came to an end. Debts skyrocketed after a number of unsuccessful exploration attempt.

The global race to net zero has also increasingly been damaging, with Tullow in recent years gradually calling an end to its exploration efforts to focus on effectively managing existing assets.

Shares were handed another blow last month as Tullow slashed its free cash flow forecast, amid underperformance at its Jubilee field in Ghana.

A Tullow Oil drill on the Jubilee field, offshore Ghana.

Tullow’s existing strategy aims to have less than $1billion in net debt by 2025 and cash gearing below 1x in the near term.

Potential suitor Kosmos has production operations and exploration opportunities offshore Ghana, Equatorial Guinea and in the deepwater US Gulf of Mexico.

Kosmos, which itself has $2.7billion of net debt, pumped 65,400 barrels of oil equivalent per day in the third quarter, compared to Tullow’s efforts of 63,700 barrels over the entire first half of the year.

Shore Capital analyst James Hosie said in a note: ‘The two companies share the same core assets – the Jubilee and TEN fields offshore Ghana – so there is a natural operational fit and Kosmos will have a clear understanding of the opportunities within the assets.

‘A transaction would give Kosmos operatorship of both fields and create scope for operational synergies.

‘From a Tullow perspective, a potential tie-up with Kosmos could be a route to addressing its balance sheet with it needing to refinance the $1.3billion of secured loan notes that mature in 2026.

‘Overall, we see a key obstacle to agreeing a deal being finding a structure that satisfies both companies’ shareholders and creditors and leaves the business with a robust capital structure.’