Investing.com -- S&P Global Ratings has lowered Tullow Oil (LON: TLW ) PLC’s long-term issuer credit rating and issue rating on the company’s senior secured notes to ’CCC+’ from ’B-’, citing the impending maturity of its substantial debts, and a negative outlook for the firm. The company’s $1.39 billion senior secured notes are due in May 2026, and its $250 million revolving credit facility (RCF) is set to mature in June 2025.

Tullow Oil is currently engaged in refinancing discussions and plans to sell its assets in Gabon and Kenya later this year. These sales are expected to bring in upfront cash receipts of $340 million, which the company intends to use for debt repayment.

However, S&P Global Ratings has also downgraded its oil price assumptions for 2025. Brent crude is now estimated to be valued at $65 per barrel, which is expected to result in Tullow generating only minimal free operating cash flow (FOCF). This, combined with low oil prices and weak capital market conditions, could hinder the company’s refinancing efforts.

The negative outlook from S&P Global Ratings suggests that Tullow’s ratings could be further lowered in the next six months if the group fails to refinance its capital structure or if its liquidity deteriorates. The agency has also revised its liquidity assessment of the group to ’weak’, reflecting the potential for a liquidity shortfall if Tullow cannot refinance the senior secured notes before their May 2026 maturity.

Tullow’s ability to refinance its debt is heavily reliant on improved capital market conditions. Current market conditions and oil prices pose a risk to the group’s refinancing plans, particularly given the impending maturity of its substantial debts.

The group has agreed to sell its assets in Gabon and Kenya, with both transactions subject to regulatory approvals and expected to complete later this year. Proceeds from the asset sale in Gabon are estimated at about $300 million, while the proceeds from the Kenya asset sale, totaling $120 million, will be spread over 2025 ($40 million), 2026 ($40 million), and 2028-2033 ($40 million).

S&P Global Ratings could revise the outlook to stable if Tullow manages to refinance its capital structure and if the risk of a default is no longer present.

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