Tullow seeks fresh debt in $2 billion refinancing

Tullow Oil Plc, the U.K. explorer seeking funds for projects in Ghana and Uganda, is selling shares and negotiating to increase a borrowing facility to $2 billion.

The company is in talks with banks to add about $600 million to an existing $1.4 billion debt package, using its stake in a Ghana offshore venture as collateral, Chief Executive Officer Aidan Heavey said today. Tullow’s new-stock sale will equate to as much as 9.1 percent of ordinary share capital, or about 400 million pounds ($550 million), Bloomberg calculations show.

“We were blown away by support” from banks and shareholders, Heavey said on a conference call with reporters. Tullow said it will pay about 3.75 percentage points above the London interbank offered rate on the debt. The company expects to complete the share sale today, Heavey said.

Tullow recouped earlier losses in London trading, rising as much as 19.5 pence, or 3.3 percent, to 620 pence. The stock was at 606.5 pence as of 9:26 a.m. local time, valuing the company at 4.49 billion pounds.

The London-based explorer plans to invest about $3.1 billion to develop the Jubilee field off Ghana and pump the first oil there in 2010. Tullow is targeting about 4 billion barrels of oil and gas resources in the Gulf of Guinea off Ghana and Ivory Coast, where it’s had “outstanding exploration success,” Heavey said.

Kosmos Energy LLC, Ghana National Petroleum Corp. and Anadarko Petroleum Corp. also hold stakes in the Ghana project.

‘Major Resource Potential’

Appraisal of the Jubilee field confirms “major resource potential” of as much as 1.8 billion barrels, Tullow said today.

The company has also been exploring fields at Uganda’s Lake Albert, where it may sell part of Block 2, which it fully owns, Heavey said. Tullow may invite a partner to share project costs and build a pipeline to export oil from Uganda through Kenya’s port of Mombasa.

“We’ve exceeded reserves to make the Uganda project commercial” following the exploration campaign, the CEO said. “We’ve had lots of approaches” from potential partners, he said, adding that “we’ve decided not to talk about this for now.”

Tullow plans to invest 600 million pounds in projects this year, Heavey said. The company replaced more than 500 percent of its reserves last year after producing on average 66,600 barrels of oil equivalent a day. It expects to cut output to 60,000 barrels a day this year.

Raises Reserves

The explorer increased its reserves estimate to about 800 million barrels of oil and gas as of the end of last year, up from an earlier 551 million-barrel forecast, Tullow said today in a statement.

“High-impact exploration wells — Tweneboa and Teak in Ghana and Ngassa in Uganda — are targeting over 1.5 billion barrels of gross upside potential and will commence drilling in the first quarter of 2009,” the company said.

Tullow canceled the sale of 11 percent of the M’Boundi oil field in Congo for $435 million to Korea National Oil Corp. because of opposition from the African state, Heavey said.

“It wasn’t a major item in our financing” plan, he said. “It was a small interest in a major field and non-material” and “we are quite happy to keep it.”

Source: Bloomberg