London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
The business has looked seriously undercapitalised for a while.
The following struck me as worrying and incomplete:
Underlying operating cash flow(1) is expected to be c.$0.5 billion at $50/bbl for the first year of Tullow's new business plan which aims to deliver c.$7 billion underlying operating cash flow over the next 10 years; 2021 pre-financing cash flow is expected to be c.$0.2 billion at $50/bbl2.
(1) Cash flow from operating activities including lease payments, before capital investment, decommissioning expenditure and debt service
If 2021 cashflow BEFORE capex, decommissioning and debt servicing is going to be just $0.2bn and they want to generate $7bn of operating cashflow over the next 10 years, the missing piece of the puzzle is how much capital investment will be required?
I do find it troubling and evasive that the CEO has not shared his whole financial forecast. How much capital expenditure is required year-by-year, how much for debt servicing, how much for decommissioning?
I think the amount of capital required will be very sizeable and TLW is looking at a fund-raising well in excess of its current market capitalisation. Part of this fundraising would pay back some debt, satisfy the debt holders and put the company on a firmer footing. The rest of the capital would be invested in Ghana to generate the operating cashflow Dhir is targeting.
Investors have a right to see the WHOLE spreadsheet.
Best
Happy
Happy,
It's cashflow is after CAPEX and Decommissioning.
More detail of expenditure was provided at CMD.
Slift
Thanks. Genuinely wishing to understand this:
Underlying operating cash flow(1) is expected to be c.$0.5 billion at $50/bbl for the first year of Tullow's new business plan which aims to deliver c.$7 billion underlying operating cash flow over the next 10 years; 2021 pre-financing cash flow is expected to be c.$0.2 billion at $50/bbl2.
(1) Cash flow from operating activities including lease payments, before capital investment, decommissioning expenditure and debt service
The note describes operating cashflow as being BEFORE capital expenditure. Then elsewhere it says:
Capital expenditure is forecast to be c.$265 million, with an additional c.$100 million to be spent on decommissioning.
So that means free cash flow BEFORE interest payments = $0.5bn - $265bn - $100m = $135m
Then add on annual cash savings of $125m through organisational restructuring = $260m. I see this as roughly equating to the statement: "2021 pre-financing cash flow is expected to be c.$0.2 billion at $50/bbl2." I'm guessing in year one they don't get the full benefit of the annual cash savings.
The annual interest bill must be much more than $0.2bn so the refinancing will require them to raise cash to repay some of the net debt reducing the interest bill and leave some cashflow headroom for contingencies.
Happy,
the statement:
"(1) Cash flow from operating activities including lease payments, before capital investment, decommissioning expenditure and debt service"
Applies to c. $500m cashflow.
c. $500m cashflow - $265m CAPEX - $100m decom = $135m + $75m FID = c.$200m FCF (as stated in the trading update)
Interest payments are included underlying cashflow, but not debt capital repayments. Refinancing costs are not included as TLW and needs to be applied to the c. $200m.
Thank you!
So, my mistakes were (1) to deduct annual cash savings which are already reflected in operating cash flow and (2) to not include the Uganda FID payment for 2021.
However, you state: "Interest payments are included underlying cashflow".
But Tullow describe underlying cashflow as: "before capital investment, decommissioning expenditure and DEBT SERVICE [my caps]."
Debt servicing includes interest. So what makes you believe interest payments are included in operating cashflow?
Thanks again
Happy, I'm pretty confident that interest payments are included.
I have an estimate of $60-80m FCF (before $75m FID) for FY21 at $50/barrel.
Suggest you work it out if you want to convince yourself. Best way to understand it.
Thanks Slift but I don't think in this case there is anything to work out.
I'm simply replaying to you the Tullow statement that states debt servicing is not included in the operating cashflow figure.
I think they need to raise capital and/or restructure their debts as a matter of urgency in order to be able to service their debts and remain a going concern.
Best
Happy
Interesting conversation between the two of you getting down and dirty into the numbers but TLW are on record at least 4 times in answering direct queries from investors that they have no intention of a d4e or rights issue. "They would say that would'nt they"....... actually that would probably be an issue for the regulator if they deliberatley put out false and misleading market sensitive information.
Supercooper,
Tullow investor relations can only reveal and say what has been said in RNS'.
Even they probably don't know outcome of RBL, refinance etc. until the information is released by management.
Exactly Super
They have adopted an open and transparent business now, so they wouldn't say that they are not going for RI or Equity swap on debt then just go ahead and do it!
They have even said that they get regular offers for their multiple assets but now don't need to rush to sell anything!
Slift,
If you are suggesting IR in TLW operate as a stand alone section and reply directly to investor queries without passing them through senior management then you do not understand their function. Investor relations of companies are glorified post boxes and are there to ensure all investor queries are answered by senior management on a timely basis. Anything said by IR comes officially from the company.
Sure thing Supercooper.
I'm sure management has the time to provide an answer to every question asked by average Joe.....
You're right Slift
They just let any junior admin person assure investors there is no rights issue planned.
Super
I think the point is even Tullow can't know the outcome of the current negotiations with lenders (albeit by now they should have a very good idea of what is likely to be required). As part of any negotiated agreement, the lenders may require Tullow to raise capital and/or restructure their debts. In fact, I would say it is highly likely that this will be case.
I say "highly likely" because according to the figures disclosed by Tullow in the TU, the company will have a serious liquidity shortfall in 2021 without any mitigating action being taken. It's 10-year plan is undeliverable in year one without raising capital and/or restructuring debt.
So statements by the company such as "we do not plan to raise equity etc." are correct until they are no longer correct, if that makes sense!
Best
Happy
I understand your view H Inv but the trigger for your scenario will be a completely unexpected outcome of the RBL negotiations. I would be really dumbfounded (and I have been before with TLW) if they had just submitted the plan and have sat on their hands waiting for an answer. There would have been informal contact since November that should give a degree of comfort for the company's announcements. However, as I say, if the lenders are not willing to play ball, all bets are off and that will be last chance saloon.
Tullow is right now deep into negotiations with the banks and financers and it will become clear in the coming weeks, but if anyone doubts or are not sure what they are trying to agree on - I suggest they drop them an email and ask.
It seems strange to debate something that's already known?
I wonder who has been shorting this in the last couple of days?
Private Investors?
Davstock,
With the proviso the answer may come directly from some temp in the typing pool....
Just to be clear, I do not think an equity raising e.g. via a rights issue would be a bad outcome for shareholders in the long run. It would ensure a business that was adequately capitalised with a stronger balance sheet able to invest properly in its world-class Ghana assets. That has to be better outcome than a business that is only just managing and at risk of lurching from crisis to crisis every time the oil price moves. The questions is how much is enough and also whether any equity raising may need to be complemented by converting shares and/or offering some other form of compensation to debt-holders e.g. a higher coupon rate.
As far as I can see business-as-usual and a straightforward rolling forward of the existing RBL is not on the table. If it were, it would already have been agreed by now.
Best
Happy
True Super
Lol
Happy, I'll finish on this thread with the observation that in order to raise 300ml (insignificant compared to 2.4bln) Tlw would need to issue 1,5billion shares - investors can judge if that is something they would be in favour of. The way out of this is long term trading out of it imo, as set out in the strategy that was'nt in existence the last time RBL was negotiated.