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Cheers Slift and Longish
"Problem is What is the impact on production? do they need to invest more for declining wells, I have not read too much into the work in Ghana but think there is a problem."
I agree that there is an uncertainty with this, which is why the forward guidance and strategy going forwards (to be implemented by BOD and CEO) is important.
Last year, there was a faster decline in reserves in Enyenra field, where Tullow had to suspend 2 wells due to mechanical issues. This field was also downgraded by 30% in reserves (at the independent audit of reserves and resources, which was also a write down absorbed by Tullow in 2019).
Furthermore, Jubilee was impacted by reduced gas offtake and export to Ghana National Gas Company due to low demand. The water cut in some of the wells has also increased. Constrained water injection also contributed to the reduction in production.
Tullow have previously said that production for 2020 will be between 70-80k.
At the end of 2019, they had also said that production for 2021-2023 is expected to average around 70k.
Since then in 2020, a water injection well at Jubilee has since online in Q1 and following repairs to the water injection system, the system is operating at full design capacity. Tullow has also put together a taskforce that will improve the reliability of the water injection system (to reduce decline in production as a result of fail rates of the water injection system). The gas offtake has also been increased (and increase in flaring was approved by the Ghana ministry of energy) which has allowed production of circa. 90k bopd.
There are also indications that Tullow will focus on Ghana and improving production going forwards (as noted in the Shareholders' circular for the Uganda sale).
So it all just depends on what Tullow's strategy is going forwards. This will likely be provided by the new CEO at the half year results.
Thanks Akhtar, 'we do not know how strong demand will be and if the green revolution is being accelerated'
The developing 'green' policies are generally underpinned with 'voluntary guidance' which TLW has already adopted best practice and adopting 'best in class' policy.
The FSB Task Force on Climate-related Financial Disclosures (TCFD) has developed 'voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders and help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
TLW recognise 'climate change and the decarbonisation of the global economy represent fundamental strategic risks to their business.. and are proactively taking action to mitigate these risks by:
'complying with emerging climate change legislation and regulation and reducing our GHG emissions as far as is reasonably practical; minimising the GHG emissions potential of our activities and implementing reduction initiatives; adopting a business strategy that is responsive to applicable regulatory developments designed to address climate change; and maintaining transparency and openness in our engagement about climate change'
Full disclosure in line with the TCFD recommendation are show from page 25 onward in the 2019 Annual Report
See also, pages 27 and 28 of the 2019 TLW Sustainability Report.
Slift great analysis, double checked your maths and agree based on an average $60 dollar oil price on an annual basis, on a simplified approach.
Assume 80kbpd ($60 oil price, $12 Opex costs) = $1.4bn for the year
Capex = ($0.3bn)
G&A = ($0.1bn)
Finance costs = ($0.2bn)
Decom = ($0.1bn)
FCF = $0.7bn
Problem is What is the impact on production? do they need to invest more for declining wells, I have not read too much into the work in Ghana but think there is a problem.
Longish i think the happy medium is $70, $80 sustained for a long time will bring the supply issue around again, i dont think anyone wants that, you can get spikes, and think one is coming as too much has come off the table, but we do not know how strong demand will be and if the green revolution is being accelerated. I am not saying oil is going away but demand growth may slow.
Tullow were unlucky that TEN did not come online a bit earlier and they enjoyed the high oil price, really think this is a great company, CEO makes no difference to me, he may bring in discipline and you wont see stupid dividend reinstatement. But I am hoping i am wrong and with his background can bring his relationships to the table to help Kenya move on.
Uganda as we acknowledged was sold cheaply but the companies hand was forced.
If they can replicate successes elsewhere in terms of oil find and restore the balance sheet and fast track projects, this price will be a lot higher in years to come.
I have stated before that i am here long as believe in the company will come through and a new CEO is pointing us i the right direction.
My concern is the price of poo is very much stuck at $42 range floating a bit up or a bit down. I will be alot happier when this pushes towards $50 maybe planes flying will help.
If this sticks around low 40s then i may take my profit
More good analysis Slift.
My 'philosophical' perspective supports $60. We know the IMF, governments, firms et al were using $80 for their long range plans/ FIDs before the pandemic. Total and TLW appear to have set c$60 as a tipping point for the Uganda deal. The world returning to WTO rules must adopt common definitions of cost including the price of oil and each sovereign economy will aim to comply in setting policies, including cleaner/ greener energy. This will apply across the tlw geographical footprint. The markets can remain asynchronous for long periods and 'flip flop' around common definitions but never the less, imo, guidance is set for compliance on a glide path to $60 and higher oil prices. To survive this transition period, its fortunate tlw have the hedges and saleable assets to bridge (polarise?) the trade gaps with the real economy.
"My surprise was that you don’t think there will be more write downs and that you think with oil at $60 this could make £1."
The write offs etc. are for Q2. There hasn't really been anything to write off tbh.
- The reserves/resources were independently audited at year end 2019 (and so reserve write offs were made then). These reviews are done at least every 2 years.
- Tullow hasn't really drilled any wells to write off in Q2
- The Jamaica license expired in July 2020. But Tullow has already written this off in 2019 (so absorbed).
- Assets are likely to be impaired due to oil price though (if you class this as a write down, but I think of it more as recoverable)
Regarding oil at $60 being A CONDITION for £1, here's my reasonings:
- At $60/barrel, FCF would be circa. $700m
- Hence, provides liquidity to pass all tests with RBL (net debt will be reduced, so less risk of RBL taking the company to admin)
- Material upgrade of all assets (and hence increasing their value)
- Credit re-rate: Improves chances of restructuring debt and would no longer be a going concern (which is what's stopping investors investing here in general, all else equal)
- Credit re-rate: likely to get institutional investors and pension funds investing longterm in Tullow as their credit rating would be less vulnerable to defaulting
- FTSE250 entry: As above, likely to see FTSE250 entry as oil price rises, which would also attract institutional investors and pension funds
But also, as i've said in my previous post, a successful exploration at Suriname well, the strategy going forward and production of 85k+ bopd are also conditions required for the said market cap.
"I'm slightly surprised by the optimism, but there's no doubt that increased oil prices would do a lot of good here"
I don't see $100/barrel anytime soon. EIA/World Bank and other competent agencies who have the data have estimated oil price to be depressed until at least 2022.
EIA estimated $41/barrel for H2 2020, and $50/barrel for 2021. But any increase in oil price is positive for oil companies.
"Assuming the sale of Uganda goes through next week, to what extent do you think this reduces the likelihood of Tullow going bust? I would put the possibility of such an outcome reasonably high at present (maybe over 50%). How much do you think the sale of Uganda will change this?"
Tullow requires this sale at the moment for the liquidity test (September 2020). The liquidity test is with the RBL where Tullow needs to show that Tullow has/can make enough cash for all financial commitments in 2021.
The problem is Tullow is required to pay a $300m bond in July 2021, which increases the liquidity requirement for 2021.
Which is achievable without Uganda sale, but Tullow also has a $650m senior note due in 2021.
So even after the Uganda deal, there is still uncertainty regarding liquidity (I expect 2021 to be limited again with Capex) and whether Tullow can raise enough cash through operations for the senior note in 2022.
Until debt is restructured, or oil price is high enough where Tullow can generate cash for their financial commitments, there is still a high risk.
Tullow's credit rating will likely be upgraded following Uganda sale (which increases chance of survival as more likely to get debt restructured).
I am ignoring you, in your own merits.
There are only daytraders and posters about other stocks.
People in this chat don't even have an interest in the company.
This board not worth my time. addio bye
IMO, the whole reason for current SP is the going concern regarding liquidity, debt repayments and credit ratings.
I find it very difficult to value Tullow based on $100/barrel POO.
POO price influences:
- Cash generation from operation activities
- Asset values based on reserves/resources
- Capital Expenditure
- Shareholder returns
Assuming POO retains $100/barrel price point for a whole year, and assuming current activities:
- Free cashflow around $1425m to $1750m
- All assets would be upgraded in line with reserves/resources available
- Dividends reinstated and/or buyback for the following year
- Increase in exploration and production expenditure to further expand portfolio and production for the following year
With a FCF of $1400-1800m, the $650m senior note due in 2022 would no longer be an issue and RBL debt can be reduced.
And liquidity will no longer be a concern. Credit rating agencies will upgrade credit rating on Tullow's borrowing facilities.
I'd say around £7-8b market cap, or around 500-550p, but can be up to £10b market cap depending on explorations.
Also, at this point, selling Uganda would really be a very bad move (You hearing Canary?).
Slift many thanks for your detailed work , Eric Nuttal of Canada makes a very good argument for $100 oil by the end of the year, What would you value Tullow with that price per barrel?
Thanks again Slift.
Certainly lots in the pipeline and some wriggle room. This year is still about rebuilding trust. We know the new CEO's background is 'pregnant with possibilities' so its going to be interesting to understand his take on the strategy going forward. Hopefully more than raising an eyebrow but he is unlikely to show all his cards on his 1st day out.
News starts to flow again next week with the Uganda vote. GL and GLA
No worries Longish!
I honestly can't think of anything (other than impairments and maybe cash at bank and/or net debt) that is likely to have a negative impact at the Q2 Trading Update/Half Year Results.
- No asset writeoffs expected: No license expiry, no downgrades in reserves
But will see what Tullow can surprise us with... if anything.
I strongly believe this company will come through with production back on track and debt restructuring in 2021. Or at least at this point.
If Tullow can really achieve over 78k bopd this quarter and over 80k bopd in Q4, then I'd imagine Tullow to get two consecutive credit re-rates (Likely to be one in August 2020, and another in either December 2021 or March 2021).
Though the second credit rating would be dependent on the following:
- Goliath Voltsberg North (Suriname Well)
- higher production guidance (probs 85k+) for 2021
- POO price
- Positive directions from CEO
i'd value this company at a market cap of around £1.5b (or just above £1) at a POO price of $60, if both credit ratings are upgraded.
Thanks Slift. We are lucky to have you on this BB.
Things to look out for in the Trading Update - Explorations
Tullow have stated that before they drill any more wells, they will reduce their stake to circa 30% for all licenses.
500 km 2D seismic acquisition completed?
Will Tullow plan for a 3D seismic here for 2021?
Interpretation of 3D seismic acquisition completed?
Investment decision to drill a well in 2021 following the above?
Tullow owns 35% interest here, so no farm down, but possible 2021 drill if above results are promising.
Following high-grading of both Kanuku and Orinduik, information on where Tullow plans to drill the next well for 2021.
Tullow owns 60% interest in Orinduik, if next drill planned for Orinduik, Tullow will likely farm out 30% here.
Expected dates for 2D and or 3D seismic acquisition of Z-64, Z-67 and Z-68? - Possibly Q2/Q3
Well in Block 47 to be drilled in Q4 2020.
Tullow owns 50% of Block 47. Tullow will likely farm out circa. 20% of the interests here before the drill. Although not sure if farm out can be completed in time before the drill, will have wait for update!
3D seismic survey in Blocks 114 and 119 completed?
Expected start date for 3D seismic survey for Block 122? (Late 2020 or 2021?)
Tullow owns 100% of Block 122 - Likely farm out before 3D seismic survey here.
Things to look out for in the Trading Update - Operations
Barrels produced per day from Jubilee (est. 30-32k), TEN (est. 24.5k), non operated portfolio (est. 23k)
Ntomme-9 well flow rate guidance and whether it will be online in August
Any new undeveloped areas identified for 2021 investment to production?
CALM buoy commissioned?
Non operated portfolio Gabon:
Ruche wells planned for 2020 delayed due to covid19. Any updates?
Progress of sale of stake
Info on FID and other activities since force majeure?
Info/Progress on exploration compensation for the work done by Tullow on the Turkana fields (circa. $2b)
Decommisioning (UK, Mauritania):
UK final clearance activities all completed?
Progress of abdonment programme for wells in chinguetti fields in Mauritania