London oil explorer at risk of debt default

Core Viewpoint - Tullow Oil is facing a potential default on its debts due to a significant bond repayment of $1.3 billion, while its cash reserves are dwindling to less than $200 million [1][2]. Financial Situation - The company is required to make a bond repayment of $1.3 billion by May next year and is attempting to negotiate refinancing with lenders [2]. - S&P Global has downgraded Tullow's credit rating from CCC+ to CCC, indicating a deeper plunge into junk status and increasing borrowing costs [2][3]. - Analysts predict that Tullow will spend $100 million more than it generates this year, exacerbating its cash flow issues [4]. Liquidity Concerns - S&P has expressed doubts about Tullow's ability to repay the $1.3 billion bond, citing insufficient liquidity [3]. - The possibility of further downgrades exists if the company's liquidity continues to decline [3]. Historical Context - Tullow Oil was once part of the FTSE 100 index with a market value exceeding £14 billion but has since fallen to a market capitalization of £155 million, trading at less than 11 pence per share [4][5]. - The company has accumulated significant debt while attempting to develop its discoveries, leading to asset sales to raise cash for creditors [6]. Operational Changes - Tullow is divesting assets in Kenya and Gabon, with the proceeds directed towards debt repayments, leaving it primarily operating in Ghana and with minor operations in Côte d'Ivoire [6][7]. - A spokesperson for Tullow stated that the company is making progress in refinancing its capital structure and is exploring various options [7].