Kosmos Energy KOS, a U.S.-based oil and gas firm, has announced that it no longer wishes to acquire Tullow Oil TUWOY, a West Africa-focused upstream energy company. It did not state any specific reason for the decision. The announcement came in a few days after the two companies announced that they had engaged in preliminary talks for an all-share acquisition of Tullow Oil.

Projected Production Capacity of the Combined Entity

The potential merger might have resulted in a combined entity with a production capacity of more than 130,000 barrels of oil equivalent per day (boe/d), as per the 2024 forecast released by the two firms. The combination of the two companies would have established a leading exploration and production (E&P) firm with its operations focused on the western coast of Africa, including Mauritania, Senegal, Ghana, Equatorial Guinea and the U.S. Gulf of Mexico.

Operational Synergies and Shared Assets in Ghana

Per a Reuters report, Shore Capital Stockbrokers have noted that the deal made sense for the two companies as they would have benefited from their shared assets in Ghana. These assets would have led to potential operational synergies, enhancing the profitability of the combined entity. However, the transaction would likely have encountered challenges, as it would require approval from key stakeholders, including the Ghana government. Additionally, approval from the creditors of both companies would be needed to finalize the deal.

Debt Concerns and Financial Implications

Kosmos Energy and Tullow Oil are highly indebted, meaning both companies have a substantial debt burden. Many industry analysts believed that the potential merger with KOS would have helped Tullow Oil improve its financials. The two companies collaborate in many key fields in Ghana.

Kosmos Energy had been provided with a deadline of Jan. 9, 2025, 5 p.m. (London time) to make an offer for acquiring the West Africa-focused energy company. Although KOS has announced that it will not proceed with the acquisition, the company has reserved the right to reconsider this decision under certain circumstances.

Tullow Oil’s management remains confident in the company’s ability to operate independently. Management also stated that KOS is well-positioned to improve its capital structure.

Zacks Rank and Key Picks

Both KOS and TUWOY carry a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks from the energy sector areTechnipFMC plc FTI and Nine Energy Service NINE. TechnipFMC plc currently sports a Zacks Rank #1 (Strong Buy), while Nine Energy Service carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TechnipFMC plc is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry. The company’s total backlog witnessed a high of $14.7 million in the third quarter of 2024, indicating an 11.1% increase from the previous year’s level. This growing backlog ensures strong revenue growth for FTI.

Nine Energy Service provides onshore completion and production services for unconventional oil and gas resource development. The company operates across key prolific basins in the United States, including the Permian, Eagle Ford, MidCon, Barnett, Bakken, Rockies, Marcellus and Utica, as well as throughout Canada. With a sustained demand for oil and gas in the future, the need for NINE’s services is anticipated to increase, which should position the company for growth in the long run.

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TechnipFMC plc (FTI) : Free Stock Analysis Report

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