Published: April 9, 2009
African oil explorer Tullow Oil has managed to secure a massive US$2bn worth of new reserve-based debt facilities, based on its success in uncovering world-class oilfields in Africa in the past three years.
The new money has a near seven-year tenor, and will replace Tullow’s existing reserve-based debt arrangements and provide additional funding for the Group’s future capital commitments, which include two key African hydrocarbons assets, the world-class Jubilee project in Ghana and acreage in Uganda’s Albertine basin.
A huge US$1.885bn of the new debt has come from the commercial banking sector, despite the growing pressures on lenders in 2009.
On March 6, facility documentation was put in place by BNP Paribas, Royal Bank of Scotland, Barclays, Calyon, ING Bank, Lloyds TSB, Natixis, NIBC Bank, Societe Generale, Standard Bank, Standard Chartered, Sumitomo Mitsui Banking Corporation and Bank of Scotland. The commercial debt was split into a US$1.785bn senior facility and a US$100mn junior facility.
The remaining US$115mn came from the World Bank’s International Finance Corporation (IFC).
Tullow’s chief financial officer, Ian Springett, said on March 9 that the new debt package represented a major milestone in the development of Tullow’s financial capability, reflecting “the quality of Tullow’s assets as well as the strength of our banking relationships”.
In a subsequent conference call, Springett said that “US$2 billion was always the number” that Tullow has targeted since it distributed requests for proposals to banks in August 2008. “Getting the IFC to come in was a real vote of confidence,” he added.
The margin to be paid by Tullow on the senior and IFC facilities, depending on the level drawn, will range from 3.25% to 3.75% over Libor. Springett explained that if less than 50% of the loan is drawn, the margin will be 3.25% over Libor; 3.5% when anywhere between 50% and 75% of the loan is drawn; and 3.75% for a disbursement level over 75%.
Record results
Both Tullow’s performance and assets fully vindicate this display of banking confidence. The company unveiled record annual results on March 11, with post-tax profit for 2008 climbing by 330% to £226mn.
However the financial results were matched by superb exploration results in Ghana and Uganda. A remarkable 100% success rate was achieved from 15 wells in the two countries in 2008, with 281 million barrels of oil equivalent (boe) added to the African portfolio. In Ghana, Tullow plans to invest about US$3.1bn in developing the offshore Jubilee field, from which it will start pumping oil in the second half of 2010, as part of a wider development plan involving an estimated four billion barrels of oil and gas resources in the Gulf of Guinea.
In terms of Uganda, Tullow has confirmed it is looking at a commercial oil find in its Lake Albert acreage with estimated reserves of at least 600 million barrels in the Buffalo-Giraffe and Kingfisher fields. Chief operating officer Paul McDade said in the conference that Tullow will produce first oil in early 2010, with a longer-term plan to export crude through Kenya in about five years. Tullow intends to sell part of its stake in the recent Ugandan discoveries, but is “in no rush to farm out”, says chief executive Adrian Heavey.