A potential takeover by Kosmos Energy Ltd. could resolve Tullow Oil Plc’s balance sheet issues, but debt refinancing would be a challenge, according to analysts.
Both companies acknowledged early merger talks on Thursday, following media speculation. Together, they would create an Africa-focused explorer with production exceeding 120,000 barrels of oil equivalent a day. Under stock-exchange rules, Dallas-based Kosmos must announce whether or not it will make an offer by Jan. 9.
The discussions emerged days after Tullow Chief Executive Officer Rahul Dhir said he would step down after four years at the helm. While he refocused on the legacy assets in West Africa and improving the indebted firm’s finances, Tullow’s shares have slumped 39% this year.
The approach by Kosmos may be “somewhat opportunistic” due to the leadership change, James Hosie, an analyst at Shore Capital Group, said in a note. While a deal presents a way to address the balance sheet, a structure that appeases both shareholders and creditors remains a “key obstacle,” he said.
Tullow, headquartered in London, accumulated billions of dollars in debt from its free-spending days as a wildcatter. Part of that requires refinancing, according to Bloomberg Intelligence analyst Will Hares.
“A deal would resolve Tullow’s balance sheet issues, but will have to address its imminent refinancing of its 2026 $1.4 billion notes,” Hares said.
Tullow’s shares fell 10% in London on Friday, paring this week’s gain to 11%.
While Kosmos has operations spanning a wider swath of the continent, including a liquefied natural gas project with BP Plc in Senegal, it’s already a partner with Tullow in key fields in Ghana.
