When commodity prices are squeezed, low leverage and high quality assets are preferred. Tullow Oil has the latter, and is working on the former. On Wednesday it announced a that should, counter-intuitively, help.

First, some history. Tullow opted to develop the TEN and Jubilee oilfields offshore Ghana when the global oil price was around $100 a barrel. Both fields are considered high quality assets, but developing them was a long, capital-intensive process. Meantime, both oil and Tullow’s share price dropped; the latter is down four-fifths in three years. The financing needed to develop the fields became a larger part of the balance sheet. Leverage rose just as investors began worrying about leverage.

The structure of that debt is also problematic. Tullow has $1.3bn of bonds coming due after 2020 and around $2.3bn drawn from a $3.5bn credit facility that expires in 2019 (the company’s equity market value is £2bn, or around $2.6bn) But that facility is a “reserve based loan”, collateralised by the Tullow’s reserves. As these resources deplete, or their per-barrel price declines, so does the available credit line.

Operational issues have also surfaced. This year, Tullow identified a problem with one of the vessels used to store oil from the Jubilee field before tankers transport it away. It is insured against the damage, but .

The convertible is relatively small compared to Tullow’s other borrowings, and is costlier than the loan facility. But it extends the debt maturity profile and reduces Tullow’s dependence on reserve based loans, whose terms will look increasingly unattractive if oil prices remain low.

With a plan for managing its liabilities and production in Ghana set to ramp up — the TEN field is expected to start up soon, boosting revenue and cash flow — Tullow might just be through the worst.

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