Member Info for Megla

It’s definitely going to be an interesting H1 presentation. No doubt lots of questions on the implications (or lack of) from the court case.

Absolutely agree with the need to transition away from fossil fuels, but the focus has to be on demand. All Shell is doing is providing cheap energy that supports our current standard of living. Address the demand side and Shell will have no option than to transition away from oil and gas.

Question is, will getting down to net debt of $65bln actually help sentiment?! It certainly can’t hurt, but will the share price respond to the increased shareholders returns?!

It does feel like suppliers are being targeted at the moment, rather than the focus being on demand for fossil fuels. Which sets the world up for some huge problems going forward if human behaviour doesn’t change at the same speed as the climate warriors want big oil to change.

It all seems very shortsighted in my view, if the Netherlands case was enforceable (it isn’t outside of the Netherlands) assets would have to be sold, yet they would continue to produce. So no one really wins?!

Personally, I think the net-debt target can be hit this quarter if the adverse working capital movement from Q1 unwinds in Q2, if not, definitely Q3. That would give us a true net-debt figure of about $50bln in old money, before IFRS 16 made a mess of the balance by including lease costs as debt. At least some buybacks will cushion the blow of the disappointing share price.

You’re probably right Barrie, but I don’t think we’ll be too far away. Just unwinding the working capital movements from Q1 would put us at $68bln.

Time will tell, but hopefully they can reinstate the buyback process ASAP.

Big question is, does the company hit the net debt target in this quarter or next? Not out of the question for Q2, but the adverse working capitals movement in Q1 would have completely unwind to get close.

Patience is all that’s needed. Debt reducing towards target, FCF huge at current commodity prices, reasonable approach to the energy transition.

Once folk are flying agains and the company is actively buying back shares in the market, the price will be a lot higher (hopefully).

Dan, simply to pay down debt, which is far too high.

Most companies in CARD’s shoes have done the same. A rights issue would sort the balance sheet out and make any debt negotiations much simpler.

Rights issue will sort it out, probably required as well.

Peakview, I’ve got plenty of these at 13p so interested to know how you get the 40p valuation?

600m shares that would give a valuation of £240m.

Core project is 30mboe net to IOG (2p and 3m from 2c)

Let’s say $15boe for life of field capex, opex and g&a

Assuming $25boe sales price (43p per therm) that gives $10pb netback.

So core project is worth (pretax) $300m or around £215m, which is higher than your valuation. Super rough figures of course, but I guess they give an idea.

Obviously this is just the start, and additional value will come from future developments, but just interested to to know if I’m missing something?

Cheers.

Thanks for the heads up SOS, I will immediately sell my shares.

Muppet.

Short term price irrelevant in my view, need the following:

Sept/Oct - Successful RBL redetermination
Nov - Uganda sale proceeds
Nov (?) - Capital markets day including plans to address capital structure
Dec - COVID vaccine rollout
Jan - Successful RBL redetermination including resolutions to capital structure.
Q2 2021 - Kenya farmout
Q3 2021 - Oil prices $60+

Price this time next year +200% imho

Tim, but how is the risk reward is any different just because it’s been spelt out to investors what the implications are of it not completing?! The risks were the same before the results so I’m not sure what’s changed to shift your opinion.

Don’t get me wrong, I’m sure they’ll be a massive sigh of relief when the Uganda cash hits the bank, but judging by all the news flow that looks like a done deal to me.

Which companies do you prefer over Tullow with a 100% potential upside?

Good thread.

Tim - which other names would you say have at least a 100% upside? Just so we can see what you’re comparing against?

I do think both you and Tony will have sold at the very bottom in the cycle. Obviously that’s a matter of opinion of course and time will prove who is right or wrong.

Tullow’s assets are world class, long life, low cost and with lots of upside as indicated by Rahul when talking about recovery factors. The exploration portfolio is also world class, I think most people will be more surprised if the company doesn’t hit a substantial amount of oil Guyana at some point.

Yes the capital structure and balance sheet are a concern, but they’ve been a concern for some time. Nothing in the results was surprising so I don’t understand why they were a trigger to sell.

If Tullow have a good capital markets day that includes resolutions to the capital structure then I don’t think we’ll have long to wait until the share price corrects somewhat.

Slift, you seem to be confusing this, it isn’t me that’s saying there’s going to a problem, it’s the company. They went to the trouble of spelling it out, including what happens in a default scenario. Investors don’t like to see that sort of thing, hence why the share price got clobbered.

I’m just taking my lead from them, if you want to challenge their assumptions why not speak to IR and tell us why they differ. Yes, they could probably move capex around, but who wants to be invested in a company where they have to shape their investment decisions around passing RBL liquidity tests.

The real discussion for me is why they brought it forward given the implications of it failing, I’ve already shared my views with IR who have flatly denied them so would just be speculation on my part.

Personally, I think they’ll be mitigating actions but in place by the end of Jan, but what that looks like I don’t know. Maybe tweaks to the RBL and senior notes and an injection of new equity?!

Whatever happens I think the CEO has made the right call, the company needs clarity on its capital structure for the benefit of all stakeholders. As it stands, who wants to invest in a company with dreadful going concern statements and no plan on how to deal with its upcoming debt maturities. Juggling capex around is fine, but there’s zero point if that just means you’ll fail the next liquidity test.

Roll on the capital markets day.

Slift, thanks for posting the link, I did miss it. Still confused though, year end liquidity was $700m, current liquidity is $500m. H1 FCF was -200m, so the $500m would make sense if the RBL facilities had remained static. I’ll discuss with IR.

“What the above is showing is that Tullow WILL have enough liqudity to pass the test, assuming all the above is true.”

With respect, your numbers do not show the company passing the liquidy test, Tullow need at least $200m of cash to run the business due to movements in working capital. Showing a small positive, that you’ve only got by including the Uganda FID proceeds, isn’t going to satisfy our banking syndicate.

The company has told us there’s going to be a problem in January, your numbers prove that, so why try and spin a narrative that they can pass? They key thing is that the company puts one or more of the mitigating actions into place, that will be benefit all stakeholders in the long run.

What do you thinks going to happen Tim? You reference PMO a lot, but Tullow’s debt structure is very different and it isn’t being blackmailed by a vulture hedgefund. The RBL means that bondholders would take some serious losses in any default scenario, which perversely protects the equity structure somewhat.

The company doesn’t yet have a plan, but apparently we’ll get one on capital markets day, put together by an incredibly competent CEO. Don’t get me wrong, there are risks, but a deal with creditors is more likely than not in my view. Which will allow Rahul the time to turn the company around.

Tim, you’re telling people how to suck eggs. FCF is a simple calculation if you know the variables.

Your assumptions by the way are wrong, next years FCF will higher on the same oil prices than this year.

Thanks for another lesson on convertible bond repricing. If you think Tullow would consider going down this route after the opposition to resolution 13 I think you’ll be very much mistaken.

Tim, why has the April 2021 $200m amortisation ‘obviously’ been completed if they haven’t mentioned it? That’s still 7 months away so would have been noteworthy news in the half year results.

Thanks for the lesson on the RBL calculations, I didn’t realise that if you knew what all the variables were you’d be able to calculate what the FCF would be.

The convertibles have a much higher conversion price isn’t an option, the answer is extending maturities on both the bonds and the RBL, which is what I think will happen.

Reckon we could expect FID next year now? Surely?

That is good news. Especially with FID bringing in an extra $75m

James,

Tullow have said they’ll fail the January RBL liquidity test without further actions.

“The Group’s cash flow projections forecast a potential liquidity shortfall during the 18-month period relevant to the Liquidity Forecast Test in respect of the January 2021 RBL re-determination due to the maturity of the $650m Senior Notes due in April 2022.”