Kosmos in 'very preliminary' talks over Tullow takeover
By Michele Maatouk
Date: Friday 13 Dec 2024
(Sharecast News) - US-based Kosmos Energy has confirmed it is in "very preliminary" talks with Tullow Oil about a possible takeover of the oil and gas exploration company.
In a very brief statement, it said there can be no certainty that any offer will be made, nor as to the terms on which any offer might be made.
Kosmos said it reserves the right to vary the form and/or mix of the offer consideration and to vary the transaction structure.
"A further announcement will be made as and when appropriate," it added.
Under takeover rules, Kosmos has until 1700 GMT on 9 January 2025 to either announce a firm intention to make an offer or walk away.
The statement from Kosmos came after Tullow put out its own statement confirming recent press speculation.
Shore Capital analyst James Hosie said: "The two companies share the same core assets - the Jubilee and TEN fields offshore Ghana - so there is a natural operational fit and Kosmos will have a clear understanding of the opportunities within the assets.
"A transaction would give Kosmos operatorship of both fields and create scope for operational synergies. We assume any transaction would require the support of the Ghanaian government. We suspect the approach may be somewhat opportunistic, coming soon after news of Tullow's upcoming leadership change.
"From a Tullow perspective, a potential tie-up with Kosmos could be a route to addressing its balance sheet with it needing to refinance the circa $1.3bn of secured loan notes that mature in 2026.
"Kosmos itself has $2.7bn of net debt (as at end-Q3 FY24F) with a ND/EBITDAX ratio of 2.2x but has been able to access debt markets recently (issuing $500m of 7-year loan notes in September 2024) and has circa $700m of available liquidity.
"Overall, we see a key obstacle to agreeing a deal being finding a structure that satisfies both companies' shareholders and creditors and leaves the business with a robust capital structure."
Dan Coatsworth, investment analyst at AJ Bell, said: "Tullow is a stock market story come full circle. Starting out as a small cap oil and gas play, a series of big discoveries in Africa helped propel the company into the ranks of the FTSE 100.
"Having subsequently lost its touch in prospecting for hydrocarbons, seen sentiment towards its sector sour and fallen into financial difficulties, Tullow's life as a public company could soon come to an end in reduced circumstances.
"The identity of the bidder, US operator Kosmos Energy, is no great surprise given it is partnered with Tullow in Africa. Tullow's shares are up 25% over the course of the week as speculation built about a possible deal, which explains why they have barely budged on confirmation that discussions have begun."
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