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Tullow Oil is launching £607m rights issue at a 45 per cent discount to its current share price in an effort to shrink its debt burden.

Tullow is saddled with $4.8bn debt as it, like many other independent oil explorers, forged ahead with capital intensive projects over the last two as a half years as oil prices were slumping.

The loss-making group has in recent years been focused on delivering its Ten deepwater project offshore from Ghana, which achieved first oil last year, while it has also been trying to progress projects in Uganda and Kenya.

Tullow last year raised $300m through a bond issue to help shore up its balance sheet and recently started discussions with its banks over refinancing a $3.3bn reserve-based lending facility, a form of financing where reserves are used as collateral for loans.

The group earlier this year announced it would reduce its stake in the Lake Albert oil project in Uganda in a $900m deal to help progress the development that is expected to produce 230,000 barrels of oil a day at full production.

Chief executive Aidan Heavey said today:

This is the right time to get our balance sheet in order and this offering will give Paul [McDade, chief operating officer] and the management team the necessary financial and operational flexibility to grow our business even if oil prices remain low.

Mr McDade said:

Tullow has taken a number of significant steps since 2014 to re-set and restructure the business to ensure the Group is well positioned to meet the challenge of lower oil prices. As a result, we are now producing positive free cash flow and have begun the process of reducing our debt.

Tullow has a strong set of low cost production, development and exploration assets in Africa and South America and, by accelerating the reduction of our gearing through this Rights Issue, we will be able to focus on growing our business by investing more across our portfolio and taking advantage of opportunities that industry conditions present.

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