Tullow Oil - comment

Bonds should probably be falling more than we see them this morning. Tullow has this morning lost its Ghana tax arbitration, with the ICC Tribunal rejecting its challenge to the $196.5m corporate income tax assessment relating to business interruption insurance proceeds. We have consistently highlighted the arbitration as a key downside risk to the credit, although we only assigned a c.30% probability to an adverse outcome. That risk has now crystallised, and the ruling is clearly negative for Tullow given the additional cash liability against a business that remains highly leveraged.

This comes despite the strong operational performance reported earlier this week, with FY26 production expected at the top end of guidance and FCF guidance upgraded to $170–250m. However, the arbitration outcome reinforces our view that the credit remains exposed to material non-operational risks and, coupled with the over-leveraged balance sheet, leaves little room for manoeuvre.