Member Info for jj..

I use an Irish broker. Also, bought some through Killik in the past.
$200k face is minimum =

There are some limitations on buy backs.

Firstly, the Senior Secured bonds, (the 10.25% bonds) amortise at $100m p.a. (each May) at par. They trade roughly at 86% in the $, and yield 16% currently (to May 26 return).
There is a restriction of $100m p.a. restricted payment basket, which is all they can use to buy back bonds. They can buy back either the senior secured at 86% or the sub bonds (2025 bonds) at 70%. But it is limited to $100m p.a.

Note, this restriction is removed if leverage is less than 1.5x.

However, the Company are adamant that there is a greater return to equity holders by spending free cash on CAPEX. The IRR on new wells is apparently greater than the return on buying back the bonds at a discount. I personally think they should buy back some of the sub bonds as it would be a positive signal.

But it raises an interesting question. Never hear of investors buying the bonds.

The return on the Senior Secured bonds, Caa1 (CCC+ equivalent) gives 16% to maturity.
The return on the Sub bonds (Caa2., CCC equivalent) gives 26.6% yield to maturity (May 2026).
To put into context, the shares would need to increase to 71p by May 2026 for the return to be the same on the senior secured.
To get an equivalent return as the subs, the shares would need to increase to 71p by March 2025).
For full disclosure, I am long the bonds.
The bonds have limited upside, but in the short term I would say have equivalent upside. i.e. if positive Tullow event, the shares and the bonds will both rally.
And no doubt the bonds have better downside protection.

FYI,
Still postiive on the name, but the rating downgrade of Tallow's bonds is not a positive.
Mainly on the back of the Ghanian downgrade, with 70% of earnings in Ghana.
Moody's has no concern in relation to Tullow's liquidity - This rating downgrade is solely linked to their production and 2P reserves in the Country. Moodys downgrading Ghana to Caa2.

Terms of the bonds prevent a share buyback. Not a chance.

Apologies for my ignorance - But where is the details on the investor presentation. I wasn't expecting any presentations until the AGM statement in June.

A couple of slides explain the underinvestment

https://www.tullowoil.com/application/files/7916/1642/0847/Tullow_Oil_-_2020_Full_Year_Results_-_FINAL_-_new.pdf
Slide 20 and Slide 21 - I know it is old slide but shows the underinvestment historically

Second slide I would highlight
https://www.tullowoil.com/application/files/6115/7960/2833/tullow-oil-plc_2018-full-year-results-presentation.pdf

Slide 25 shows the decay levels as of 2018. Since then, Tullow has invested in Jubilee but limited in TEN.

Bottom line, under ivnested , mainly because the payback is worse

THe addition the acquried stake gives?
5,000 * 280 days for remainder of the year * ($100 oil price minus $15 cost (I know, higher than I said) = $119m of additional profit, before tax. Tax rate difficult to gauge, but 10% of EBITDAX, so $12m, therefore Free cashflow before CAPEX $107m. CAPEX of $30m, equals extra $77m this year.
Following year FY23, and subsequent years. , 5,000 * 365 * $85/bbl profit = $155m. Tax $16m, CAPEX - likely to be higher, c. $50m, giving $90m Free cashflow.
Pay back on acquisition less than 2yrs.

You are forgetting CAPEX. The Free cash flow assumption is after CAPEX. The OPEX per barrel is not $42/bbl. It is about $12/bbl (see pg 7 of the annual report) or slide 18 (for actual OPEX).
But the sstatement this morning states $30m additional CAPEX because of the increased owenersip. Going forward, because they acquired a disproportionate more of TEN, the additional CAPEX could be higher.
Still positive, but might want to redo your numbers.

you do know that as of Dec 31st, they are 45% unhedged to the upside for FY22 production (assuming that the Occidental preemption closes soon, 40% pre the acquisition).
That is a significant unhedged position.

In having the debt it is given leverage to the equity. Having lower debt would mean issuing significant amounts of equity - 2-3x more equity and then the return would diluted.
E.g. If business A needs $1bn of cash and makes 15% return - if all equity funded, equity gets 15%.
However, if $500m of the $1bn is funded by debt at 10%, then the equity gets leveraged returns - $100m return on $500m equity, 20% return.

As long as you think the debt is manageable, and the Company return is greater than the cost of debt, then having leverage can be a positive. But leverage has costs, as with Tullow - no dividends, greater hedging than maybe desirable.

But all of this is abstract. Tullow couldn't raise equity, needed to refinance so raised new debt to pay back maturing debt. I am bullish, but acknowledge the debt burden and all that entails

Buy the debt.
the Senior Secured debt trades at 105ish equating to 8.4% yield to maturity.
The subordinated Bond, which matures in 2025, gives nearly 12% YTM. I am long both the 2025 bonds and the equity, but the bond has significantly lower volatility and if not greedy gives excellent returns.
THe increased hedging, which they are obliged to do, makes the bond safer and unfortunately takes upside away from equity holders.

This is on the back of the occidental sale yesterday - US markets opening up. Hard to justify the enterprise value of Tullow given the amount Kosmos paid for Occidental's stake in the two Ghanian fields.

It is unlikely that any Company would buy Tullow now. Tullow bonds can't be repaid, without compensating investors at Tbills +50bps for the next 18 months (2yrs from issuance) and thereafter they are callable thereafter at 105.25% (100 Plus half coupon) and steps down there after.
SO quite holders would lose out on c. $200m of value transferred to bondholders - 10% of $1.8bn issuance (I don't have the makewhole price at the moment).

I am bullish on Tullow, and I hope I am wrong, but I strongly doubt there is a white knight.

We have to wait until September results and hopefully strong details on the new wells. (and commitments on new well drilling into 2022!)

Enquest can't pay dividend for the same reason as Tullow - the bonds don't allow it.

Enquest has decommissing liabilities, with limited issues at Tullow.

Enquest hedged with collar of $59/68 bbl, roughly, Tullow hasn't given full disclosure yet.

I maintain there is different risks to both. I am long both. But I don't see it as one succeeds at the expense of another. Oil price will lift both, and Tullow has operational upside is successful at drilling. Enquest has done acquisition and if integrates well will succeed.

Tullow got $58/bbl in H1. Hedging is always a negative in an up market, but required for the debt holders and downside protection. If you want solely oil exposure, buy a derivative of oil!.
Enquest $ bonds trade at 93-4 level, or 11% yield. Tullow comparable bonds (the unsecured 25's) trade at 87-88 or 11% yield. (the new bonds are secured, and although longer dated, are better secured, they trade at 105ish, to yield 9%.

But it isn't a case of one versus another. The bigger issue is the ESG pressure that is keeping oil names lower. See wintershal Dea cancelled its IPO. No one wants oil

https://www.reuters.com/business/energy/wintershall-dea-post-strong-q2-thanks-oil-prices-lower-spending-2021-07-27/

Last post to you Annu123 - I haven't been aggressive to you and don't like the aggression back.

There is no dividend on this - as stated on various chats - we agree on that.
The interest rate is expensive - again, agree. But the cost of it, which is high comes with the following:

1. It doesn't need bi-annual reviews every year, which are not insignificant costs
2. It wasn't just a refinancing, but provided extra cash to fund CAPEX over the coming 2-4yrs. This enables Tullow to engage with Stena and others to secure drilling rigs.
3. There is no upcoming maturities until 2025 which means no amortisation, no subsequent arrangement fees etc.

The difference for Enquest is it still needs to refinance the bonds, the debt that was refinanced is senior and the there is no significant CAPEX at Enquest.
Although both are exposed to oil prices, they are different. Enquest is a mature, ageing field, which is running down. Tullow is drilling new wells and the CAPEX iis aggressive to capture that.
So different stages of production and therefore different risks.

My last point is on Tullow's TEN field. If you want to be negative, look at the monthly data coming out of there and the rapid decline. That is the question for the call in September. I am a little concerned about this issue.

I don't fully understand the gas point. They sell the gas to the Ghanian government for free, so why are they importing LNG?

I like reading troughsnout posts. They are informative (I think they are the same person as Breventhearn Research) but they are obviously knowledgable on the situation.

Tullow is a straight game of current production declining from existing wells and whether you believe the new wells will generate enough of new production to cover the decline. I strongly believe it will, and with the refinancing have 2-3yrs of runway from liquidity to execute on the well drilling.
But I don't dismiss the comments that TEN production is declining. You can actually see it from the Ghanian website. https://www.petrocom.gov.gh/production-figures/

And for the umpteenth time, the covenants on the debt does not allow it. So there won't be buy-backs.

Obviously don't believe me, so call IR and they should tell you.

(I am still long)

I never understand the phrase there is more buys than sells, they are matched every time, every buyer has a seller. it might not be reported yet, but there is a match.

The terms of the refinancing, and that of previous prevent share buybacks (unless to acquire for Company share scheme). They are also not able to pay dividends under the terms of the refinancing.

This was also true when they were in breach of their financial covenants under the old RBL facility.

So stop asking for share buybacks and dividends. It is not an option (until leverage reduces significantly).

Any free cash will be spent on new drilling and hopefully these new wells will increase the production numbers.