Tullow Oil rockets as it says credit facilities remain unchanged

Shares in oil exploration and production company Tullow Oil surged after it said its lending banks have completed the routine six-monthly reserve-based lend redetermination process and available debt capacity remains unchanged at $3.7bn.

Tullow said that as of the end of September, the group has cash and undrawn credit facilities amounting to $2.1bn of headroom with no near-term maturities. This builds on the $450m capital increase and covenant renegotiation achieved in March 2015, the company said.

Chief financial officer Ian Springett said: "Today's announcement demonstrates the robustness of Tullow's debt capital structure and emphasises the strong support that we are receiving from our relationship banks. Generating such significant liquidity at this time reflects our prudent hedging programme and the quality of our producing and development assets.”

Mike van Dulken, head of research at Accendo Markets, said: “Today’s gains most likely derive from a collective sigh of relief given mounting concerns about debt loads in the exploration and production space with both major and minor operators forced to cut projects and capex and banks obliged to review borrowing facilities within a sector adapting to a new lower oil price environment.”

Still, Investec advised some caution. The brokerage said it doesn’t dispute that access to debt is important.

“However we urge equity holders to step back and consider the broader capital structure and their place within it. The ongoing cost also needs to be considered. Yes, debt is cheap right now, but will it be forever?”

Investec rates the stock at ‘sell’ with a 175p price target.

At 1252 BST, shares were up 7.4% at 181.60p.