* Tullow plans to raise $750 mln in rights issue
* Proceeds for investments in Africa, Latin America
* Shares down 16 pct
(Recasts, adds quotes and details, updates share)
By Ron Bousso and Arathy S Nair
March 17 Africa-focused Tullow Oil took
investors by surprise on Friday with plans for a $750 million
rights issue to help it pay down heavy debts amassed during the
oil price downturn.
Tullow shares fell 16 percent after the company revealed the
deeply discounted cash call, which the company said would help
it back to growth and allow it to make new investments in Africa
and Latin America.
Oil prices fell sharply in mid-2014 just as the
London-listed oil producer was investing heavily in an offshore
oil project in Ghana. At the end of last year Tullow, which is
valued at around $2.7 billion, had debt of around $4.9 billion.
Low oil prices have forced Tullow to curb spending over the
past two years and it is aiming for savings of around $600
million by mid-2018. It has cut almost half of its employees and
is also selling a stake in a project in Uganda for $900 million.
However, with oil prices stabilising above $50 a barrel and
better financial flexibility, Tullow plans to explore its
existing Jubilee and TEN fields in Ghana and Kenya as well as in
Surinam later this year, Tullow's chief operating officer Paul
McDade, who is due to become chief executive in April, said.
"The rights issue and the work we've done removes any
questions about our financial strength and allows myself as I
take over as CEO and the new management team to get the company
back to growth," McDade told Reuters.
He expects Tullow's capital spending to fall to $500 million
in 2017 before rising next year, though cost discipline "needs
to stay" given oil prices are still around $50 a barrel.
One analyst said the debt reduction and the dilution of the
share price could make Tullow an acquisition target.
"If you're a major looking to buy reserves of scale,
Tullow's valuation is probably not that far away from what you'd
think is reasonable," RBC Capital Markets analyst Al Stanton
The rights issue, at a 45 percent discount to Thursday's
closing share price of 130 pence a share, was fully underwritten
by Barclays, JPMorgan and other banks.
Separately, Tullow said China's CNOOC had
exercised its pre-emption rights to buy 50 percent of the
interests in Uganda which it is selling to Total.
Total agreed in January to buy most of Tullow's
stake in a Uganda project for $900 million.
The terms of the CNOOC's agreement will be the same as
agreed between Tullow and Total, Tullow said.
($1 = 0.8091 pounds)
(Reporting by Arathy S Nair in Bengaluru; Editing by Jason
Neely and Alexander Smith)