U.S. oil and gas firm Kosmos Energy walked away from its pursuit of West Africa-focused Tullow Oil on Tuesday, without specifying any reason for the decision, prompting a 10% drop in Tullow's shares.
Kosmos' announcement comes less than a week after the companies said they were in early talks for a potential deal that would have created a West Africa-focused producer.
New York-listed Kosmos stock surged almost 13% in pre-market trading following the news.
Had the deal gone through, the combined company could have produced more than 130,000 barrels of oil equivalent per day (boepd), based on the two companies' 2024 forecast, spanning Mauritania, Senegal, Ghana and Equatorial Guinea on Africa's western coast as well as the U.S. Gulf of Mexico.
"There was logic to considering a transaction given the shared assets in Ghana and scope for operational synergies," said James Hosie, research analyst at Shore Capital Stockbrokers.
"But any transaction would have required the support of the Ghanaian government and the creditors of both companies, which may have been challenging."
The two heavily indebted firms are partners in key fields in Ghana.
Kosmos had a deadline of 1700 GMT on Jan. 9, 2025, to make a firm offer for Tullow. However, it said in a statement it had reserved the right to reconsider its decision under certain conditions.
Tullow said its board remained confident in its standalone business and was "well positioned to optimise its capital structure".
"I felt it (the potential deal) was somewhat opportunistic ... coming soon after the news of Tullow's search for a new CEO," added Hosie.
Tullow said earlier this month CEO Rahul Dhir would step down and also resign from the board next year.
(Reuters - Reporting by Aby Jose Koilparambil and Arunima Kumar in Bengaluru; Editing by Tasim Zahid and Emelia Sithole-Matarise)