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.
Some uncomfortable disclosure in the TLW shareholder circular posted today (https://www.tullowoil.com/application/files/9616/1467/8250/21-7653-1_Walnut_Circular_OKTP_v1.pdf). TLW Board is still of the opinion that it does not have sufficient working capital for its present requirements based on the current 18-month look forward RBL Liquidity Forecast Test. The shortfall is US$365 million under the reasonable worst-case scenario (average oil price of US$45/bbl in 2021 and US$47.5/bbl in 2022 financial year), and there is still a shortfall (unquantified) under the TLW base case (US$50/bbl in 2021 and US$55/bbl in 2022). This happens because it assumes TLW cannot refinance the April 2022 bond.
What is new and worrying is that TLW is not just asking the RBL banks to grant a waiver of the Liquidity Forecast test (a reasonable request given the outlook for oil prices and a strong case it can refinance the 2022 bonds). It now seems management are actually entertaining a distressed debt amendment to the entire capital structure.
The circular says management have ‘commenced discussions with its creditors with the objective of agreeing certain amendments to the terms, including the maturity date, of some or all of the RBL Facility, the Convertible Bonds, the 2022 Senior Notes and the 2025 Senior Notes, that would enable the Group to pass the Liquidity Forecast Test, which is currently in progress, with, if necessary, such amendments being approved by Shareholders.’ (Circular pages 76 and 77).
To even think about restructuring the convert and bonds rather than pushing to refinance as quickly as possible is nuts, It will do long-term market damage to TLW’s future market access.
It must be banks are refusing to agree to waive the liquidity test unless some pain is inflicted on the convert and bonds. But to do this simply to meet a paper exercise in forecasting future oil prices is shortsighted.
I question what advice PJT is giving TLW, and why are they not pushing harder to solve this by calling the 2022s early with a bond refinancing done right after the results next week.
The reason S&P has TLW on 'CCC+' credit watch negative is fear of a distressed bond exchange. If you want to permanently trash your debt market access this is the road to follow.
My concern: having come all this way over the past year TLW will mess it up with talk of debt restructure. If its bad for debtholders invariably its worse for equity.
@Roxby - That link doesn't work for me. Could it be that it wasn't meant to go out as it seems TLW have removed it.
It's still there, just need to take the bracket off the end.
There must be an oil price at which each oil producer makes a £1 profit or indeed a £1 loss. Or of course a £500m profit or a £500 million loss. I should imagine they have hedged some more and a bit like last year put a floor of $50.8 on the realised OP for the business. Even though in the open market the average price was $41.96 in 2020.
It seems like the mood music for the ongoing conversation with the banks is upbeat
Nothing to be concerned on here - none of this is new and is the logical exact position we'd expect given everything since key annoucements and figures were given across the last six months or so. Feels more of a shout out to stakeholders saying 'don't do anything silly now, the stars are aligning but pulling the plug will be in no one's interest'.
@Roxbury ...I don’t doubt your interpretation from a legal standpoint as wording is harsh. Part of that will be the directors obligations etc and part to ensure shareholders vote....I take more comfort from the words used in last RNS. I don’t think our bond holder group are majority the loan to own types so will come down to pricing and no doubt PJT will be looking at alternative new lenders for a new bond...otherwise no success fee....my concern is really around completing the refi with existing bonds or new participants before the market froth evaporates is there are other external shocks...I’d pay a bit more and just get it done rather the nickel and diming...I think Dot, Rahul and Les are all pretty cautious so have it in hand
Cheers Runningman
It is also likely to mean we will have to live with a another material uncertainty opinion for the 2020 audit...operationally little impact but financing costs will be no be as low as the could have been with a clean opinion and also less leeway for adverse press...I think Rahul will clear it up with the voiceover on 18 March webinar
To put this in context, this is raised in todays circular, Section 2 "Risks relating to the transaction not proceeding", as a potential consequence if the sale of EG is not approved by shareholders.
Agree, nothing new here. As long as it gets voted through then it’s all good.
No it’s also mentioned in section 3 - RISKS RELATED TO THE GROUP AND, FOLLOWING COMPLETION, THE RETAINED GROUP.
announced in its Trading Statement and Operational Update on 27 January 2021 that it had agreed with the lenders under the RBL Facility to an extension of the January 2021 redetermination date by up to one month. On 26 February 2021, Tullow announced that c.US$1.7 billion of debt capacity has been agreed between the Company and the global technical banks under the RBL Facility; this remains subject to approval by a majority of lending banks under the RBL Facility and, once approved, will be effective from 26 February 2021. The Liquidity Forecast Test assessment, which forms part of each redetermination, is currently in progress.
Tullow issued a Trading Statement and Operational Update ahead of its audited full year 2020 results, which are scheduled to be issued on 10 March 2021. In this Trading Statement and Operational Update, Tullow announced that:
• the Group’s working interest oil production in 2020 averaged 74,900 bopd in line with expectations;
• 2020 full year revenue is expected to be c.US$1.4 billion;
• capital and decommissioning expenditure for 2020 were c.US$290 million and c.US$50 million respectively;
• year-end net debt reduced to c.US$2.4 billion (2019: US$2.8 billion), as a result of US$430 million free cashflow including proceeds of US$500 million from the Ugandan Transaction; and
• pre-tax impairments and exploration write-offs expected to be broadly in line with the Group’s 2020 half- year results of US$1.4 billion.
Looking ahead to 2021, Tullow announced in the same statement that:
• the Group’s working interest oil production is forecast to average 60-66,000 bopd in 2021 following the Covid-driven drilling hiatus in 2020;
• capital expenditure is forecast to be c.US$265 million, with an additional c.US$100 million to be spent on decommissioning;
• organisational restructuring completed which is expected to deliver sustainable annual cash savings of over US$125 million;
• in Ghana, production from Jubilee and TEN for the year to date is in line with expectations. This is supported by gas export in excess of 120 mmscfd. A new oil offloading system is due to be commissioned on Jubilee in the first quarter of 2021; and
• on Jubilee, the drilling rig is being mobilised to Ghana to commence drilling in the second quarter of the year and the first new production well is forecast to be onstream in the third quarter.
Tullow also announced in its Trading Statement and Operational Update that the Group had started discussions with its creditors with regard to its debt refinancing options which are expected to conclude in the second quarter of 2021. As indicated above, in respect of the debt capacity redetermination under the RBL Facility, the Group announced on 26 February 2021 that c.US$1.7 billion of debt capacity has been agreed between the Company and the global technical banks under the RBL Facility; this remains subject to approval by a majority of lending banks under the RBL Facility and, once approved, will be effe
@toothache, try https://www.tullowoil.com/investors/results-reports-and-presentations/
@OhhAhhCantona: Am not so sure. I asked the company last week about the S&P ratings statement and to confirm there is no risk of a distressed bond exchange - so far no denial. My base case is that they can refinance in these markets and they should hit the market right after results. But there is a reason they put they wording in the circular today. Unless you are considering it why raise it? Makes no sense to trigger event a technical default on the capital structure. I honestly wonder if they are getting best advice here and being told the downside risks they are running.
Roxy,
Thanks for sharing, I am happy that the Para 2. RISKS RELATED TO THE TRANSACTION NOT PROCEEDING, they are stating the obvious , and we are all aware of these risks, if the motion is not voted through. I am still content to Hold and ride the long term tide. This is a 3-4 year portfolio stock for me.
Cheers.
It is boiler plate and taking care of fiduciary duties
Can we avoid an audit qualification re the liquidity forecast test and the 18-month testing period from March 2021 to August 2022.
Worst case and completion the would be a $365m shortfall in April 2022. Thats based on $45bl 2021 and $47bl 2022.
@rafflesintheuk01: The restructure is not a risk related to the transaction. It is related to how TLW solves its bigger liquidity issue, and TLW is very clearly and very deliberately flagging to the market it may need to restructure its debt. That is not something any company says lightly.
Android101: not an audit expert but my read is if the banks waive the test, then the auditors can sign it off. As far as I have read the liquidity test is only in the RBL, not the convert or bonds. TLW Board still have to say the business is a going concern, but this should be easy with the current bus plan, oil price and an informed view on ability to refi the 2022s.
Yes, got an e-mail back from IR with 'can’t comment on the refinancing process itself'.
Why would you expect anything other than this answer? The details are financially sensitive.
Thankyou Roxbury, got it. Hence your statement 'TLW is very clearly and very deliberately flagging to the market it may need to restructure its debt'. Its down to the Directors and the accounts dont exist for audit signature/ opinion until the Directors sign first.
Wording in black and white is harsh as directors have to cover their duties but I take comfort from:
- RNS last week talked about confident mutual deal for all stakeholders deal will be done
- when Rahul did the Q&A on the EG transaction he did mention that all the going concern stuff had to be put in and was at pains to say they had to say that stuff for legal reasons
- some wording in circular is to ensure people don’t get sellers’ remorse
- the c.$350m shortfall is based on reasonable worst case if you add say another $100-150 for say oil at average of $60 then that gets you to $200m shortfall and I would be asking the question why they need $500 m liquidity headroom and could they not manage with $300m in a crisis and have an expensive bridge facility lined up...
- if 2022 and 2025 bonds (and there are apparently a lot of cross holders) get greedy on pricing PJT must have a Plan B or C to take them out...worst case TLW may need to give some warrants like on Cine of say share price hits like £1.25+...good thing is over past 12 months there are a lot of debt pricing benchmarks and market for high yield is still strong
- I just hope the adviser overload is not getting too much but Rahul has been an adviser so he should be able cut out the fog as he is into the detail.
We will still see this push on and there may be a bit of noise we have to block out over next few weeks...and a lot more challenging deals have been done and the large shareholders will vent and seek changes of Board bend over easily to the lenders
GLA
@ Roxbury PS I like your posts as they are well balanced and good to test and challenge opinions...as you are certainly experienced on distressed debt type stuff so good content!
Cantona when the board mentions stakeholders instead of shareholders is because the board doesn't have the interest of shareholders at heart. There is no such thing as win-win there is always a side who wins more, there is the perception of armony win-win, but there is no such thing as a win-win (like the time when we sold Uganda when oil was at an historic low). If we have an excess of 0.9 billions in liquidity wtf are we doing giving freebies away and lending an ear to Slift?