Shares in Tullow Oil have dropped 15 per cent this morning, after the company announced a £607m rights issue as it continues to grapple with lower oil prices. Brent crude is hovering around $51.74 today.
Tullow has been trying to tackle the problem of cheaper oil for years now - in 2015, the group slashed its capital expenditure in a bid to stop the rot. However, it's proving difficult, as evidenced in the company's most recent set of results, when Tullow reported that huge write-offs in its African business had led to a third consecutive annual loss.
The firm has proposed a 25 for 49 fully underwritten rights issue of 466,925,724 new ordinary shares to raise gross proceeds of approximately £607m, which will total £586m after expenses.
"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," said Paul McDade, chief operating officer and chief executive officer-designate.
"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."
Chief executive Aidan Heavey, who announced in January that he will take on the role of chairman later this year, added: "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."