The recent merger talks between Tullow Oil and Kosmos Energy could represent a major strategic turning point for the energy sector in West Africa. As Tullow, once a leader in African exploration, faces significant setbacks in Kenya and Ghana, this merger could offer it a fresh start and revitalize its image.
Tullow Oil, formerly a key player in African oil exploration, has seen its ambitions collapse following the failure of its projects in Kenya. In recent years, the company has faced a substantial $440 million write-down on its African assets, primarily due to uncertainty surrounding its Lokichar project. Initially planned as a major source of commercial production, the project now faces severe challenges. In early 2024, Tullow announced an additional $18 million write-down on its Kenyan assets, further exacerbating an already precarious situation.
The high cost of investments required to develop export infrastructure, including the construction of a $3.4 billion pipeline, has forced Tullow to desperately seek partners. Thus far, these efforts have been in vain, highlighting the financial challenges the company is grappling with.
In Ghana, the situation is hardly better. While production at the Jubilee field has seen a slight increase, the continued decline in output from the TEN project weighs heavily on the company’s overall performance. In 2024, Tullow's revenues fell by 12% compared to the previous year, and its debt remains high at $1.4 billion, severely limiting its ability to invest in new projects. These setbacks demonstrate how vulnerable the company has become in the face of growing competition and increasing financial instability.
Amid this precarious situation, Kosmos Energy emerges as a strategic partner of choice. Unlike Tullow, Kosmos has demonstrated robust performance thanks to its diversified assets, playing a crucial role in the development of gas in West Africa. In particular, the company is a key player in Senegal’s Yakaar-Teranga project, which is expected to begin producing liquefied natural gas (LNG) next year. With stronger technical and financial capabilities, Kosmos is well-positioned to provide Tullow with the means necessary to stabilize its operations and fully leverage the potential of their combined assets in Ghana and Senegal.
The proposed merger would create a leading regional player with a combined production of approximately 120,000 barrels of oil equivalent per day (boepd). The strategic synergies resulting from this merger would primarily focus on West Africa, an increasingly critical region in the global energy landscape.
In Senegal, the 25 trillion cubic feet (Tcf) of proven reserves in the Yakaar-Teranga field could become a driver of economic growth for the country while diversifying the revenue streams of the merged entity. For Tullow, this merger represents a significant opportunity. By integrating Kosmos’s resources and expertise, the company could improve its finances by pooling investments and operational costs, restore market confidence eroded by years of underperformance, and reclaim its leadership role in energy exploration and production in sub-Saharan Africa.
This alliance comes at a critical time for the oil industry, which faces significant challenges related to the energy transition and crude price volatility. By joining forces, Tullow and Kosmos could not only stabilize their operations but also reposition West Africa as a key player on the global energy stage, capitalizing on the gas opportunities that lie ahead.
