Ireland and UK listed oil and gas independent Tullow Oil has raised a $2 billion seven-year reserves-based combined refinancing and additional borrowing facility backed by existing assets and its share of the new Jubilee oil field in offshore Ghana.

Despite strengthening its balance sheet in January with a 10% equity placement, Tullow's successful debt raising is still a surprise given the bank liquidity freeze, the plummet in oil price back to around $50 a barrel, the rise in bank margins – when and if sponsors can get a  loan – and the relative lack of bank appetite for reserves-based deals even in an up market.

But according to Julia Ross, risk and marketing manager at Tullow, "the process was relatively easy – we started engaging with banks in the second quarter of 2008, worked closely with the banks, and effectively closed the deal in six months from start to finish."

Lead arranged by BNP Paribas (also agent bank), HBoS, RBS,  Barclays, Calyon, ING, Lloyds, Natixis, NIBC, Societe Generale, Standard Bank, Standard Chartered and SMBC, the deal refinances Tullow's $850 million 2005 facility, a further $650 million raised since 2005 – including $550 million arranged by Bank of Scotland in 2006 to back the takeover of Hardman Resources – and adds around $500 million in new debt.

The facility is split between a $1.785 billion senior tranche, a $100 million subordinated piece and a $115 million IFC tranche – all with a final maturity of December 2015. The debt is priced at between 300bp and 375bp over dollar Libor depending on the level of debt drawn pre- and post-Jubilee completion, and comes with fees of around 300bp. Legal counsel for the sponsors is Norton Rose with Herbert Smith acting for the lenders.

The deal effectively rebundles Tullow's existing debt and debt requirement into one facility – a strategy the company first pursued with its 2005 deal when it combined the debt from three previous raisings into one, thereby enabling debt pricing on its non-OECD assets to benefit from a portfolio effect.

The new deal's pricing compares favourably with the 200-240bp margin in 2005 given the lower Libor rate and higher amount of development content in the portfolio.

The new debt requirement – around $700 million – is largely for Tullow's Jubilee Phase 1 project, which has resource potential of up to 1.8 billion barrels with a P50/2P most likely case upgraded to 1.2 billion barrels. Part of the debt was originally to be used for exploration but that will now be funded from the company's £400 million equity raising in January 2009.

The debt has been raised on a base case oil price of $42 per barrel for the first half of 2009, $45 for the second half of 2009 and $50 for 2010 onwards.

Tullow's interests in Jubilee consist of stakes in three blocks with a total area of 3852km2. It owns 31.5% of the Shallow Water Tano block, alongside Ghana's national oil company (GNPC), Sabre, Interoil and Al Thani, 49.5% of Deepwater Tano, along with Anadarko, Kosmos, Sabre and GNPC, and 22.9% of West Cape Three Points, with Anadarko, Sabre, and E.O. Group. Jubilee's gross production is initially set to be 120,000 barrels per day.

The development of the three blocks will involve nine production wells, five water injection wells, and three gas injection wells, sub-sea installation and leasing a floating production, storage and offloading vessel. The total cost of the work is estimated at $3.2 billion, of which Tullow will be responsible for around $1.2 billion.

Tullow's partner on the Deeepwater Tano block, Kosmos, is also in the market with a $750 million borrowing base facility backed by its Jubilee assets. The company does not have the corporate clout of Tullow and debt pricing will likely be higher – possibly 500bp over Libor. Standard Chartered is arranging the deal, which will include $100 million from the IFC, and is said to have interest from 14 lenders.

Tullow Oil
Status: Closed March 2009
Description: $2 billion borrowing base facility to back development of Jubilee oil field and refinance existing debt
Sponsor: Tullow Oil
Lead arrangers: BNP Paribas, HBoS, RBS,  Barclays, Calyon, ING, Lloyds, Natixis, NIBC, Societe Generale, Standard Bank, Standard Chartered, SMBC, IFC
Legal counsel to lenders: Herbert Smith
Legal counsel to sponsor: Norton Rose