25 for 49 fully underwritten $750 million Rights Issue

Published on: 17 March 2017

Proposed 25 for 49 Rights Issue of 466,925,724 New Ordinary Shares at an Issue Price of 130 pence per share

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Tullow Oil plc (“Tullow”) announces a fully underwritten rights issue to raise approximately £607 million (equivalent to $750 million at an exchange rate of £1.00 = $1.2363 on 16 March 2017) (before expenses) and that a Prospectus containing full details of the Rights Issue is expected to be made available on Tullow's website (www.tullowoil.com/investors/rights-issue-2017) later today. Tullow will host a conference call for investors and analysts at 9.00 a.m. UK time this morning, details for which can be found at the end of this announcement.

Details of the Rights Issue

  • 25 for 49 fully underwritten Rights Issue of 466,925,724 New Ordinary Shares to raise gross proceeds of approximately £607 million (approximately £586 million net of expenses).
  • The Issue Price of 130 pence per New Ordinary Share represents: 
    • a discount of approximately 45.2 per cent. to the Closing Price of 237.3 pence on 16 March 2017 (being the last Business Day prior to the date of this announcement); and
    • a discount of approximately 35.3 per cent. to the theoretical ex-rights price of 201.1 pence per New Ordinary Share calculated by reference to the Closing Price on the same day. 
  • The Rights Issue, which is subject to Shareholder approval, is fully underwritten by Barclays Bank PLC, acting through its investment bank and J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) acting as Joint Global Coordinators, Joint Sponsors and Joint Bookrunners, Morgan Stanley acting as Joint Bookrunner, and BNP Paribas, Crédit Agricole CIB and Société Générale acting as Co-Bookrunners.
  • DNB Markets, a part of DNB Bank ASA, ING Bank N.V., Natixis and Nedbank Limited, acting through its corporate and investment bank, are acting as Co-Lead Managers.

Paul McDade, Chief Operating Officer and Chief Executive Officer-designate commented today:

“Tullow has taken a number of significant steps since 2014 to re-set and restructure the business to ensure the Group is well positioned to meet the challenge of lower oil prices. As a result, we are now producing positive free cash flow and have begun the process of reducing our debt. Tullow has a strong set of low cost production, development and exploration assets in Africa and South America and, by accelerating the reduction of our gearing through this Rights Issue, we will be able to focus on growing our business by investing more across our portfolio and taking advantage of opportunities that industry conditions present.”

Aidan Heavey, Chief Executive Officer, commented today:

"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. 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.”

Reasons for the Rights Issue and use of proceeds 

Background

In early 2014, the Group recognised that the oil and gas sector was undergoing a period of significant change, with the rise of the US shale industry and the cost of both development and deep-water exploration challenging existing industry models. In response to such changes, the Company acknowledged the need to adapt its business model and started a thorough review of its internal processes, capital allocation policy and exploration strategy. When the oil price fell during 2014, from its high of $115.06/bbl to a low of $57.33/bbl, the Company was quick to take action to adjust its operational approach to the lower oil price environment and undertook a series of critical operational actions to re-set and streamline its business. Such actions included the following:

  • Implementing its Major Simplification Project which restructured the Group, reduced headcount by approximately 44 per cent. between 2014 and 2016 and is on target to generate savings of approximately $600 million by mid-2018;
  • Re-allocation of capital expenditure to low cost, high margin producing assets in West Africa, including the development of the TEN project which delivered first oil in August 2016, and reduction of exploration and appraisal expenditure;
  • Refocusing Tullow’s exploration strategy: Tullow adapted its exploration strategy as a reaction to higher industry costs, lower oil prices and a review of its 2012-14 offshore exploration campaigns; and
  • Selling a series of non-core assets and withdrawing from lower margin gas to power development projects in Mauritania and Namibia.

Together with this revised approach to operations, Tullow was supported by a solid financial strategy, based on the following:

  • Execution of its commodity price hedging programmes which gave hedge receipts (net of premium) of $363 million and $365 million in 2015 and 2016, respectively;  
  • Maintaining adequate financial headroom throughout the period which resulted in unutilised debt capacity of $875 million and free cash of $121 million as at 31 December 2016; and
  • Reducing future committed capital expenditure through strategic actions, including the proposed farm-down of assets in Uganda announced in January 2017.

Reasons for the Rights Issue

As a result of these operational and financial measures, the Group has re-set and streamlined its business for low oil prices. However, the combination of low oil prices and the significant development expenditure required by the TEN development has resulted in the Group’s gearing exceeding its policy of less than 2.5x net debt/Adjusted EBITDAX. Although Tullow began to generate free cash flow in the final quarter of 2016 as the TEN development started production and commenced repayment of its debt, as at 31 December 2016 the Group’s gearing remained high at 5.1x net debt/Adjusted EBITDAX. Tullow has continued to generate free cash flow and repay its debt since 31 December 2016. However, in light of its high level of debt and the resultant lack of financial flexibility, the Group intends to accelerate the reduction of its debt towards its gearing policy of less than 2.5x net debt/Adjusted EBITDAX through a combination of the receipt of the net proceeds from the Rights Issue, improving cash flow from production growth, and value enhancing portfolio management activities, including future asset sales and farm-downs.

Use of proceeds

The Directors believe this stepped reduction of debt will improve Tullow’s financial and operational flexibility, and enable growth within the next three to five years by allowing the Group to:

  1. invest in further infill drilling opportunities in both its operated and non-operated portfolio;
  2. undertake exploration and appraisal around the Jubilee and TEN fields to further develop the high return near field resource base;
  3. undertake further exploration and appraisal activity in Kenya to further prove up the resource base;
  4. drill high impact, potentially high return prospects across Tullow’s African and South American portfolio; and
  5. take advantage of other opportunities that industry conditions offer.

The Board has given careful consideration to the structure and quantum of the proposed fundraising and has concluded that the most appropriate structure for the Company and its Shareholders at this time is the Rights Issue to raise gross proceeds of approximately £607 million (equivalent to $750 million at an exchange rate of £1.00 = $1.2363 on 16 March 2017). The Rights Issue provides an opportunity for Qualifying Shareholders (subject to certain exceptions) to participate in the fundraising by taking up their rights to subscribe for their respective entitlements to New Ordinary Shares.

The Directors believe that the proposed Rights Issue is in the best interests of Shareholders and the Directors recommend that Shareholders vote in favour of each of the Resolutions at the General Meeting.

Intentions of Directors

The Board is fully supportive of the Rights Issue. Each of the Directors who holds Existing Ordinary Shares either intends, to the extent that he or she is able, to take up in full his or her rights to subscribe for New Ordinary Shares under the Rights Issue or to sell a sufficient number of his or her Nil Paid Rights during the nil paid trading period to meet the costs of taking up the balance of his or her entitlement to New Ordinary Shares.

Update on current trading

On 7 March 2017, the Company published its Annual Report 2016 which contains the Group's audited financial statements for the financial year ended 31 December 2016.

As disclosed in those financial statements, the Group generated sales revenue of $1.3 billion (2015: $1.6 billion) and operating cash flow before working capital of $0.8 billion (2015: $1.0 billion) in respect of the 2016 Financial Year. The Group's underlying cash operating costs were $0.4 billion (2015: $0.4 billion) and there were no material changes in the Group’s inventory during the 2016 Financial Year. However, as a result of a number of non-cash charges the Group reported a loss after tax of $0.6 billion in respect of the 2016 Financial Year. These non-cash charges included exploration write-offs associated with the Uganda and Norway disposals, goodwill impairment associated with the Norway disposal, a charge for onerous service contracts and impairment of property, plant and equipment as a result of increased forecast decommissioning costs and the low oil price environment.

Since 31 December 2016, oil prices have remained generally stable, with an average ICE Brent Crude oil price of $55.74/bbl during the period from 1 January 2017 to 28 February 2017. During the year to date, the Group’s underlying cash operating costs per barrel are materially in line with those achieved during the 2016 Financial Year.

Further information will be available in the Prospectus.

Summary of the principal terms and conditions of the Rights Issue

Subject to the fulfilment of, among other things, the conditions described below, Tullow will offer the New Ordinary Shares by way of rights to Qualifying Shareholders (subject to certain exceptions) on the following basis:

25 New Ordinary Shares at 130 pence each for every 49 Existing Ordinary Shares

held in their name on the Record Date. A Qualifying Shareholder who does not, or who is not permitted to, take up any of their rights to New Ordinary Shares under the Rights Issue will have their proportionate shareholding in Tullow diluted by approximately 33.8 per cent. as a result of the Rights Issue. A Qualifying Shareholder who is permitted to and does take up all of their rights to New Ordinary Shares under the Rights Issue will, subject to the rounding down and sale of fractional entitlements, not be diluted as a result of the Rights Issue. The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including for all dividends or distributions made, paid or declared after completion of the Rights Issue.

Holdings of Existing Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue. Where necessary, fractional entitlements to New Ordinary Shares will be rounded down to the nearest whole number and fractional entitlements will not be allotted to Qualifying Shareholders but will be aggregated and, if possible, sold in the market as soon as practicable after the commencement of dealings in the New Ordinary Shares, nil paid. The net proceeds of such sales (after deduction of expenses) will accrue for the benefit of Tullow.

Tullow has arranged for the Rights Issue to be underwritten (subject to certain customary conditions) by the Underwriters to provide certainty as to the amount of capital to be raised, pursuant to the Underwriting Agreement. The Underwriting Agreement is not subject to any right of termination after Admission (including in respect of any statutory withdrawal rights).

The Rights Issue is conditional on, amongst other things, (i) the passing of the Resolutions at the General Meeting without material amendment; (ii) Admission becoming effective by not later than 8.00 a.m. on 6 April 2017 (or such later time and/or date as the Company and the Joint Global Coordinators may agree); and (iii) the Underwriting Agreement becoming unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms prior to Admission.

Applications will be made to the UK Listing Authority and the London Stock Exchange for the New Ordinary Shares to be admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading (nil and fully paid) on the main market for listed securities of the London Stock Exchange. Applications will also be made to the Irish Stock Exchange for the New Ordinary Shares to be admitted to the secondary listing segment of the Official List of the Irish Stock Exchange and to trading (nil and fully paid) on the Irish Stock Exchange’s main market for listed securities. Applications will also be made to the Ghana Stock Exchange and the Ghana SEC for the New Ordinary Shares (fully paid) to be admitted to listing and trading on the main market of the Ghana Stock Exchange. It is expected that Admission will occur at 8.00 a.m. on 6 April 2017, when dealings for normal settlement in the New Ordinary Shares on the main markets of the London Stock Exchange and the Irish Stock Exchange, nil paid, are expected to commence.

Tullow will make an appropriate announcement or announcements to a Regulatory Information Service giving details of the results of the Rights Issue.

Action to be taken

On the basis that dealings in New Ordinary Shares (nil paid) commence on 6 April 2017, the latest time for acceptance by Qualifying Shareholders under the Rights Issue will be 11.00 a.m. on 24 April 2017. The procedure for acceptance and payment will be set out in Part 3 of the Prospectus. Further details will also be set out in the Provisional Allotment Letter which will also be sent to Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Qualifying Non-CREST Shareholders with a registered address in the United States or a Restricted Territory).

If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank manager, solicitor, accountant, fund manager or other independent financial adviser authorised under FSMA if you are in the United Kingdom, or, if you are resident in Ireland, from a person, organisation or firm authorised or exempted pursuant to the European Communities (Markets in Financial Instruments) Regulations 2007 (Nos. 1 to 3) of Ireland or the Investment Intermediaries Act 1995 of Ireland, or, if you are resident in a territory outside the United Kingdom or Ireland, from another appropriately authorised independent financial adviser.

Indicative abridged timetable

 

Publication of the Prospectus (including the Notice of General Meeting)

 

17 March 2017

Latest time and date for receipt of Forms of Proxy and electronic proxy appointments

 

11.00 a.m. on 3 April 2017

Record Date for entitlements under the Rights Issue

 

6.00 p.m. on 3 April 2017

General Meeting

 

11.00 a.m. on 5 April 2017

Date of dispatch of Provisional Allotment Letters

 

5 April 2017

Dealings in New Ordinary Shares, nil paid, commence on the London Stock Exchange and the Irish Stock Exchange

8.00 a.m. on 6 April 2017

Existing Ordinary Shares marked ex-rights

 

8.00 a.m. on 6 April 2017

Latest time and date for acceptance and payment in full and registration of renounced Provisional Allotment Letters

 

11.00 a.m. on 24 April 2017

Dealings in the New Ordinary Shares, fully paid, commence on the London Stock Exchange, the Irish Stock Exchange and the Ghana Stock Exchange

8.00 a.m. on 25 April 2017

 

Prospectus

  • The Prospectus containing full details of the Rights Issue is expected to be made available on Tullow's website (www.tullowoil.com) later today.
  • The Prospectus will be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/nsm following publication.

The preceding summary should be read in conjunction with the full text of the following announcement and its appendices, together with the Prospectus. Capitalised terms used in this announcement shall have the meanings set out in Appendix 2.

09.00 UK time - Conference call

To access the call please dial the appropriate number below shortly before the call and ask for the Tullow Oil plc conference call.

Live event

All participants

+44 (0)330 336 9105

UK freephone

0800 368 0934

Access Code

9276006


Replay

 

All participants

+44 (0) 207 660 0134

Access code

9276006

 

FOR FURTHER INFORMATION CONTACT:

Tullow Oil plc - +44 20 3249 9000

Aidan Heavey, Chief Executive Officer and Chairman-designate

Paul McDade, Chief Operating Officer and Chief Executive Officer-designate

Chris Perry / Nicola Rogers (Investor Relations)

George Cazenove / Anna Brog (Media)

Barclays

Joint Global Coordinator, Joint Bookrunner, Joint Sponsor and Joint Corporate Broker

+44 (0) 207 623 2323

Bertie Whitehead

Tom Macdonald

Michael Powell

 

J.P. Morgan Cazenove

Joint Global Coordinator, Joint Bookrunner and Joint Sponsor

+44 (0) 207 742 4000

Colin Carscadden

Alex Watkins

Laurene Danon

 

Morgan Stanley

Joint Bookrunner and Joint Corporate Broker

+44 (0) 207 425 8000

Andrew Foster

Tom Perry

Davy

Irish Sponsor and Irish Broker

+ 353 1 679 6363

John Frain

Roland French

Barry Murphy

Murray Consultants (Dublin)

+ 353 1 498 0300

Pat Walsh

Joe Heron

Open full RNS: Tullow Oil Plc Rights Issue Launch Announcement

For further information contact

  • Tullow Oil plc

    • Chris PerryInvestor Relations
    • Nicola RogersInvestor Relations
    • George CazenoveMedia Relations
    • London

  • Murray Consultants

    • Pat Walsh
    • Joe Heron
    • Dublin

Notes to editors

Tullow is a leading independent oil & gas, exploration and production group, quoted on the London, Irish and Ghanaian stock exchanges (symbol: TLW). The Group has interests in over 100 exploration and production licences across 18 countries which are managed as three Business Delivery Teams: West Africa, East Africa and New Ventures.