Kosmos is in preliminary negotiations to acquire Tullow Oil

Early negotiations are underway for the U.S. oil and gas business Kosmos Energy (KOS.N) to acquire all of Tullow Oil (TLW.L), opening a new tab that would establish a producer with a concentration on West Africa.

The two highly indebted companies’ merger would be the most recent in a string of energy industry consolidations as business boards seek to improve performance through cost reduction and scale expansion.

According to the two businesses’ 2024 forecast, the merged company will produce more than 130,000 barrels of oil equivalent per day (boepd) across the U.S. Gulf of Mexico and the western coast of Africa, including Mauritania, Senegal, Ghana, and Equatorial Guinea.

The Kosmos approach for an all-share takeover was revealed on Thursday by Tullow, whose CEO Rahul Dhir resigned on December 4.

After confirming, Kosmos opened a new tab for the initial conversations. The deadline for making a concrete bid is January 9, 2025, at 5 p.m. London time.

In the late 1980s, Tullow Oil was established as an exploration firm with a focus on South Asia, Africa, and Britain. Through a string of acquisitions and oil and gas discoveries, including the Jubilee field off the coast of Ghana, it expanded quickly in the 2000s.

Tullow, which rose to a market valuation of about $22 billion in 2012, became a symbol of the energy industry while riding the boom.

However, following a series of operational problems at strategic oilfields, unsatisfactory exploration findings, leadership changes, and a decline in investor interest in oil and gas drillers as the emphasis turned to the energy transition, it saw a sharp turnabout.

Tullow’s shares fell more than 7% on Friday, bringing its market capitalization down to $480 million. It owes roughly $1.4 billion in debt.

Based in Dallas, Texas, Kosmos has a $1.5 billion market valuation. Following the announcement of its approach on Thursday, its stock fell by almost 15%.

Kosmos, which had a net debt of $2.7 billion by the end of September, is waiting for the BP-operated Tortue liquefied natural gas venture offshore of Senegal and Mauritania to start up soon.

“This would be a sensible deal, given the shared assets in West Africa, and with Kosmos having a more diverse asset base and healthier balance sheet, would have the ability to take on the mountain of debt Tullow labors under,” Ashley Kelty, an analyst at Panmure Liberum, said

“The fact that Tullow’s CEO is on the way out also makes the company weaker, with no clear direction on future strategy.”

During the first half of 2024, Tullow produced 63,700 boepd. Third-quarter Kosmos pumped 65,400 boepd. The Jubilee and Tweneboa Enyenra Ntomme (TEN) oilfields in Ghana are owned by the two partners.