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Hello JJ
"What I don't understand is the "normal" decay on existing wells, what is the initial level of production from new wells, and probably most important, what is the probability of failure on new wells (a.k.a. the Turret issue in 2015 or 2016 - can't remember which)."
I do not have technical expertise, but what I have learned over the years, is that the rate of decline varies a lot across different fields, call it geology and type of oil. Important to get data on water cut and gas and water injected to model all this. Intial levels of production of a pair of wells (producer and injector) depend also on a variety of things. I have seen all kinds of numbers but we are talking about a few Kbopd. I have seen in the offshore data 5-6Kbopd, but also often much lower than that.
ATB
Hedge costs $2-3/barrel.
as far as I understand it, there s a chance of some further production to come on this year, but I agree with you that its more realistic to factor in any materially positive impact only for 2022.
The Tullow story reminds me of my investment in Sibanye 2018. There were many and huge problems. Financial problems, production problems, unexpected problems (mine accident, strike) and most investors were worrying and worrying while the share price (with some huge fluctuations) was going up all these years and has 6folded. I got to know management in 2018 personally and just knew: there s of course always a risk - but that management is just doing a great (!) job. Same here: there are huge and lots of problems and management is solving these problems one after the other. Long (!) term development of a company first of all depends on the fact of having either a compentent management - or not. With incompetent or negligent guys you can be lucky and profit from the underlying materials price - or not.
I m in here first of all because I guess Rahul will get things done. I havent met him so far, so no personal connection. But I like that 1. He earns a adequate salary, not like so many others in oil 2. He owns around 800.000 USD of shares - always good for shareholders to know the CEO "feels the same way" and 3. he s transparent with private shareholders and kept his word so far (no dilution e. g.).
Whats your view on the valuation of the company? My personal view is that Tullow is still hard to evaluate actually. But shorters should leave this stock in the next weeks with part of the uncertainty gone so some upside in the short term plus probably more upside once we see some financial stats (e. g. book value) go up again
The thing I wanted to point out (not at all commenting on you, but just a general statement) is that it is of no use to worry all the way up ... it just makes you sell the stock too early. Either this CEO is doing a good job or not: thats the main question.
Thanks jj..
They will hedge with options. They talked about collars but they will be conscious about the premium.
My humble opinion they will want to ensure capital for new well production as oppose to paying premium away. So will be cost conscious versus giving some upside.
Do you have any idea what the cost per bbl would be? $55 put ?
Hello jj,
But they are not going to be forced to use swaps, correct?
Do the terms require then to use collars (i.e,. buying put at $X and selling call at $(X+W)? Is anything mentioned about W?
One way or another other they could still use 3-way collars to keep some of the upside, by puying a call at $X+W+Z, with Z small.
Thank you.
ATB
miles -
I have $65 in my model for oil. The Company will have to hedge 75% of production, as per terms of the bond so will have limited oil price exposure. But oil price is a secondary issue.
Production is the key assumption - I have (ex the assets in EG and Gabon) 55,000 this year. The new wells don't come on until 2022 (my base case, I will be happy if I am wrong). 2022 production is 63k. These numbers are net as historically there is a difference between production and sales volume - if someone can tell me why please do.
I also would love to stop people posting (It is going to be x%, it is down x%). I would love if there was a minimum number of characters before someone could post.
It would then mean that they have thought about what they want to say & what they are seeking to gain from what they are going to say. I don't think my posts influence the direction of the market - it is a $1bn market Cap company, some postings on a free site will make very little difference.
What I am looking for is information. I can do the financials etc. What I don't understand is the "normal" decay on existing wells, what is the initial level of production from new wells, and probably most important, what is the probability of failure on new wells (a.k.a. the Turret issue in 2015 or 2016 - can't remember which).
As investors, and I am long, these are the risks now. I was confident the financial risk would be sorted (albeit I initially said 8.5-9.5% coupon (and I was berated for stating such a high coupon).
@jj.. so what are your projections for Tullow ... lets say this year and the next? Guessing you re seeing the oil price go to 80 this year as well (?)
Antonvb, I have a background in credit markets. Plus I create excel models of the Companies I invest it. Which involves extracting revenue, cost, cash flow and then project forward with some assumptions. It is apparent here the amount of people who doesn't do that.
If people did some basic work (Tullow only report bi-annually) investors would see the impact of each $/bbl oil, the bigger impact of production levels, and the impact of CAPEX and interest bill on free cashflow.
I spend too much time, but I generally follow the cash. Valuations based on number of bbls of oil in the ground or asset value doesn't really work for me. I am a simple man who looks at the cash.
jj.. if you don't mind my asking, what is your background and occupation? Reason why I ask is that I've been following this chat for over a year now and chipping in with my baseless 2 cents worth every so often. However, you seem to be the first person that has come out with actual relevant information in advance of it being disclosed to the market without any apparent agenda. A rare informed opinion that appears to be based on fact rather than hypothesis. And on top of that after receiving some abuse (guilty as charged :-( .... apologies). I'm just a gut feel investor; so would like to learn a bit more about the tools you use and how you get such good information. Thanks
My gut feel is he has no short interest in TLW and posting negative stuff is a part of his job. I think he benefits from analysis from his employers who do the shorting.............
Well said jj. Unfortunately none of those negatives help @Happy in the near term with his short.
Happy,
You can infer the interest rate from the interest they paid in FY20 or FY19 versus the average debt outstanding debt in the corresponding year. I work it out to be c. 6-7% on the RBL but if you want to show me something else please do.
Income interest - as you stated interest rates so low, there is limited interest received in the current environment. So the lower cash balance isn't going to have much impact.
You are stretching the basis of negative comments.
If you want to be negative focus on the negatives - the concentration on single asset, the risk of failure on the well drilling, the Ghanian tax issue.
But this deal is a positive. Stop focusing on this deal
I think somehow he's still trying to justify the entire stance which he has held for months that TLW had no choice but to initiate an equity raise, not only that but it was a good thing. How much would our shares be worth if $1.8B was raised as equity based on the current market cap? I shudder to think.
Rewind to just a few days ago he was telling us categorically the amount would be impossible for TLW to raise so shareholders would inevitably have to pick up the bill. What is it now..
the coupon is too high? His entire publically declared reason for shorting is now gone, will he fold I doubt it, will probably double down and use some cognitive gymnastics to show he was right all along.
I hope the lesson is learned not to paint your own reality based on one outcome, a lesson all of us should take stock from.
Just filter him.
He/she is just an absolute idiot.
HappyInvestor100,
Have some decency before you write "I feel sad that shareholders should rejoice at such an appalling outcome."
Do not be a hypocrite, given that you are betting against the shareholders. Owning up is the adult thing to do.
Thanks JJ and well done on your information, which was spot on.
I think the net impact will be more than $72m. It may possibly be more than $100m per annum.
First, the RBL, the biggest part of the debt was, for all its flaws, a competitive facility which benefitted from declining and record low US dollar libor rates. From 2020 accounts:
"The RBL facility incurs interest on outstanding debt at US dollar LIBOR plus an applicable margin."
It doesn't state what the "applicable margin" is but the total wouldn't be anywhere near 10.25% given current libor. The bulk of the $1.8bn is refinancing the cheap RBL facility. The difference on the 2022s is 4% but they are a smaller part of the mix.
Second, cash on balance sheet c.$0.8bn will be used to pay back part of the debt so the netting effect of income interest received has now gone.
I can't see how this a good deal for shareholders. It's a scheme for the creditors to pick the carcass bare while Les, Rahul and Dorothy et. al can continue to ride the gravy train for a good few years more. I still can't believe Les get $1m p.a.
I feel sad that shareholders should rejoice at such an appalling outcome.
All IMHO DYOR
Best
Happy
Well that RNS confirms it.....I am too suspicious :-)
I must say JJ I am pleased I apologised to you after my outburst yesterday. Great insight.
@JJ - whilst I had posted my last message I wanted to say fair dues on your posts. Agree better to pay more interest than equity raise. GLA
BumBum,
Correct to be wary of what is posted by anonymous sources, but statement out from Company stating bond done at 10.25% coupon.
Happy.....
Coupon increase is c. 4% which is $72m p.a. or $108m over 18 months. But no more redetermination nor fees related to that. And certainty is worth more.
JJ
"But, over next 18 months, they would have to repay $300m convertible bonds, $650m of 2022 bonds and some amortisation of the RBL facility totalling c. $410m. This would have used up all the cash on balance sheet and more."
Yes but the whole point of the last x months of negotiations was that they would try to secure an extension of maturities on the existing bonds on satisfactory terms.
In terms of the RBL, paying the amortisation of c.$410bnb over 18 months (haven't checked this figure but assume it's correct) would have reduced net debt by a corresponding amount. If what you say is right and the coupon rate is over 10%, that's maybe $75-100m per annum on the annual interest bill before any one-off fees. So over 18m, that's potentially an extra $150m interest without reducing the principle at all.
What they've done is substituted some near-term maturities for something akin to an interest-only mortgage at a ridiculous coupon rate IF and it's a big IF what you are hearing is correct.
All IMHO DYOR
Best
Happy
No public or market knowledge of bond completion or coupon rate. Total speculation and I don’t believe a word 90% of the time on this board, to many people with their own agenda. Low volumes today, some oilers up some down. The coupon will not be above 10% and when it’s knowledge that the 1.8bn was oversubscribed the share price will rally, only to be dragged back down again by the shorters and MM until the next piece of news (drilling and/or Kenya) block out the short term noise, horse blinkers on until 2022.
Bailiff.... I don't know.... the markets make a living by screwing us ... normally they've picked all the meat off the bone by the time the RNS is released to us plebs. So just seems a bit strange that we're getting such positive confirmation in the chat and seeing no reaction in the share price. Anyway, I hope it's all true as I'm looking forward to 90p by 3pm.