The latest Investing Matters Podcast episode featuring financial educator and author Jared Dillian has been released. Listen here.
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A driller thriller for Tullow Oil
The oil explorer surged as the price of black gold soared, but it has hit rocky ground
Default hint sparks stock dive
Tullow Oil chief executive Rahil Dhitr spooked the markets earlier this month when he raised the possibility of a future default on a $650m (€550m) debt facility due in April 2022. It sent the stock falling by up to 20% in early trading on September 9. Tullow must guide future cash flow from its oil and gas fields 18 months ahead under the terms of its reserve-based lending facilities. The period from January 2021 includes the $650m bond maturity, and the company warned that if it could not demonstrate it had sufficient funds, it could trigger a default.
The company is exploring refinancing options including seeking new funds from banks or capital markets investors. The market value of Tullow, that once soared above £15bn, propelling the explorer up the FTSE 100, has slumped to below £250m.
Heavey‘s African acquisitions offered rich seams
Former Aer Lingus financial controller Aiden Heavey founded Tullow Oil in 1985, remortgaging his home and selling his vintage car collection to help raise IR£1m (€1.27m). A contact at the World Bank flagged up an old gas field in Senegal, which had been abandoned by the big oil and gas companies.
It listed on the London Stock Exchange in 1989, acquiring interests in the UK, Pakistan, Egypt and Romania.
“We used to be very bad explorers,” Heavey said in an interview. “In the Eighties and Nineties we were rubbish — great at doing deals to buy old assets, but not very good at finding oil.”
Two key acquisitions, Energy Africa and Hardman Resources, with acreage in Ghana and Uganda, transformed the group’s fortunes.
Jubilee no field of dreams
At its peak, when oil prices topped $100 in 2011, Tullow Oil was valued at more than Rolls-Royce, and worth twice as much as retailer Marks & Spencer. Its Jubilee oil field off the Ghana coast began to hit production problems in 2012, the first signs that Tullow might be a better explorer than producer.
The collapse in oil prices in 2014 coincided with the group racking up debt to bring its TEN field, also off Ghana, to production and fund exploration. Yet when Heavey stood down as chief executive in 2017, becoming chairman, and handed the reins to chief operating officer, Paul McDade, the ship had steadied. Two years later, McDade was gone, again after production targets were missed at the Jubilee field. The dividend was scrapped, and a cost-cutting programme included the closure of its office at Central Park in Stillorgan and 55 job losses.
Part 2
Tullow has created two spin-offs to date: T5 and Boru.
Former chairman Pat Plunkett and four other former Tullow executives set up T5 Oil and Gas in 2014, to explore in Africa. It acquired interests in Senegal and Gabon. It also gathered a shareholder list of the great and good of Irish private wealth, including entrepreneurs Cyril McGuire, Maurice Healy and Patrick Joy of Suretank.
Plans for an IPO in 2018, which would raise $45m (€38m) to advance the Gabon project were shelved. T5 was last said to be seeking a strategic shareholder to act as a cornerstone investor in reviving a stock market flotation.
Heavey has private equity giant Carlyle on board as a large investor at Boru Energy, his exploration vehicle named after the former high king of Ireland Brian Boru. This spin-off is yet to make a dent in the $1bn funding commitment from Carlyle, though it is still less than a year old.
Boru is also targeting sub-Saharan Africa, offshore and oil. It is looking to do big deals of up to $1bn.
Investors hope for Dhir turnaround
Tullow’s investors will gather at a capital markets day before the end of the year to hear what chief executive Rahul Dhir plans for the company. The event “needs to provide a credible path to growing high-margin reserves in Ghana (and elsewhere in west Africa) and outline a more attractive development proposition for potential industry buyers in Kenya”, says Barclays analyst James Hosie. Dhir led Cairn India to its stock market listing, so he has credibility. He must complete the sale of Tullow’s Uganda interests. Amid the gloom, Dhir did have some good news at the recent market update. Production numbers out of Jubilee have been good. A tide turned?
can someone post the sunday times article please