Tullow Oil PLC's (LSE:TLW) best course of action is to issue equity now given its low cost of equity, according to analysts at Stifel.
The broker notes Tullow needs to restructure and/or refinance its current c.US$2.1 billion bond debt maturing between March 2025 (c.US$630 million) and May 2026 (currently c.US$1.5 billion), plus a US$500 million bank facility expiring November 2024.
“Surprisingly, we find Tullow is in the unusual position of having a cost of equity below its current market cost of secured debt; we therefore conclude that Tullow's best course of action is to issue equity now,” Stifel said.
It reckons a fund raising of around US$150 million now would currently be the cheaper finance option and may lead to reduced cost of debt as well, and build financial resilience given commodity price volatility and uncertainty over the tax dispute with Ghana.
The broker has moved its price target to 39p and retains a hold rating while shares in the firm fell 3.1% to 37.04p.