Tullow Oil is preparing to issue new shares in a bid to raise £607m to help tackle its $4.8bn (£3.9bn) debts.
The London-based oil company will issue 466.9 million shares at 130p each. The Africa-focused oil explorer racked up its debt pile after the 2014 oil price crash battered revenues while Tullow was investing heavily in an oil project off Ghana.
The strain has propelled the company’s ratio of debt to more than five times its annual earnings before interest tax, depreciation, and amortisation. Tullow hopes to drive down debt to 2.5 times its annual earnings.
In response it has kick-started talks for a full-scale refinancing later this year and a one-year extension to keep its $1bn corporate debt facility open until mid 2019 to increase its financial flexibility as the overhaul begins.
Paul McDade, chief executive, said the company was already seeing more cash flowing into the business but that the rights issue would accelerate its bid to pay off its debts. He expects the restructuring talks to conclude by the end of the year.
The multi-million pound boost will also help it to move ahead with a raft of projects. The company is set to undertake exploration and appraisal work in its Jubilee and TEN fields near Ghana and its fields on the Kenyan coast. Tullow added that it also hopes to take advantage of “other opportunities that industry conditions offer”.
Mr McDade is taking the reins from former chief executive Aiden Heavey who held the top position for more than 30 years. In a controversial reshuffle, Mr Heavey will chair the board for a two-year “transition period” while the company gets back on track.
“Tullow and its staff have worked exceptionally hard over the past three years to re-set the business comprehensively in the face of the toughest conditions I have known in the oil sector,” said Mr Heavey.
“This is the right time to get our balance sheet in order and this offering will give Paul and the management team the necessary financial and operational flexibility to grow our business even if oil prices remain low,” he added.
Tullow reported an operating loss of $754.7m for 2016. Although this was an improvement on its $1.09bn loss the year before it fell short of analyst expectations of $639.4m. Tullow has slashed spending plans for the year to $500m from $900m last year.