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Tullow has been slavishly paying down debt to ensure the RBL can be extended (like Kosmos has just done) or replaced on sensible terms. We are fast approaching the time when production deals could be financed which would have IRRs that could have a meaningful impact on cash flows . When we no longer have to shrink our balance sheet we should enjoy equivalent rating to our peer group. I know its like watching paint dry , but private equity would love to own this puppy on one times cash flow with their cost of capital ! Patience could be very rewarding.
@SharingGuy That is logical but we have had a GPG ? Offline for 2 weeks and the gas plant we distribute to has a planned maintence shutdown in Q2. Kosmos reported gross Jubilee production of 95kbpd gross for March and April and 110% voidage replacement.
I note that Tullow said in their last statement that production should be range bound between 90k-110k gross in Jubilee for almost the next decade. Kosmos has also commented in previous webcasts that redundancy is built in to allow wells to go offline and production forecast could still be met. It may well be that the additional wells just brought on stream have needed to be brought on slowly to balance the water flood reservoir engineering. Voidage replacement needed to be accelerated as the field became sub optimally pressurised when two of the pumps broke down last year.
The end of 1H represents the peak cash outflow on the balance sheet as the capex is substantially less in Ghana now drilling has finished for probably 18 months in Jubilee. I think Tullow will gradually allow production to rise as part of a controlled reservoir management system incorporating the new offtake from Jub South East. I would not be surprised if the 1H production number averages 97-8k gross and picks up to around 105k in the 2H of the year. It is important now to run the field at full capacity and endanger water cut etc.
JMAX,the Ten write off was accounting treatment for the FPSO on the assumption that no production would occur and the lease would be surrendered at the first opportunity provided by the early termination clause. In reality, that is most unlikely to happen. If Tullow sign a new FDP the provision will be written back and further significant reserves recognised. . Furthermore the FPSO operating cost comes down very substantially after the first 10 years …by over $50m per annum from memory ? Throw your mud…it actually draws attention to how conservative the carrying values are . Rahul , has to do better at explaining the detail to the average shareholder to stop you little games .
So the amazing performance of the bonds does not impress you ? Or the Glencore facilty? Or the news that Jubillee is back over 100bpd gross…or that BAML changed to a buy tack ? Or that debt repayment is well ahead of schedule? Or that the oil price at this level would be fabulous for royalties from Uganda ? Or that we should shortly benefit from two submitted FDPs awaiting final sign off from host governments in Ghana or Kenya worth collectively multiples? on the current share price. Perhaps you can point me to some other stock on 1 times cash flow to market cap….? No , didn’t think so. Rahul may have the charisma of tax inspector but value is being created. I can understand the frustrations of those that would have preferred to pursue the valuable exploration acreage in Namibia , Guyana, etc….but the market was risk off and insisting on a resolution to the debt situation. Not being in control of our finances has already cost us $600m of mark to market hedging loses since the last bond refi ….no point getting burnt again.
My only real criticism of Rahul is that he does not want to put his reputation on the line by talking about situations beyond his control , like political decisions affecting approvals. By adopting this policy and having to write down assets like the Ten field in the intermediate period…he is short changing the returns of shareholders on anything other than a long term view. IMO of course !
@Flavius. Your confused . Chocolate prices are skyrocketing ..old cocoa bean. Brent is now the same price as it was about 10 years ago. Taxes on oil may have well risen though ? This narrative about oil prices causing inflation when in real terms over long timelines they have not, is typical nonsense . Gas prices on the other hand that have caused a crisis in certain continents are very much on the way down now. Our dear woke friends meanwhile have hindered oil and gas exploration which will now cause spikes going forward from supply imbalance. What is more interesting is that technology have driven break even points down on even expensive shale projects. Tullow has a cash operating cost per barrel of under $10 in Ghana. The oil hedges were forced on them by the bond syndicates. Hedging in fact saved the Company when prices had previously collapsed but we have taken a $600m hit this time round. Perhaps the Ghanaian government would like a share of these too ?
@Tambo210 Let me remind you that Tullow has been one of the biggest investors in Kenya . No one is disputing that host Governments have the ultimate say, but as Kenya have already entered into a binding contract they will have to pay compensation to exit which would be rather stupid. There is a PSC in place, enforceable under international law, (as the Ghanaian Government are about to find out with a highly questionable branch profits tax claim now they are in international arbitration)…On the other hand Ruto could emerge as a winner with an additional revenues and jobs for the Kenyan people. Seems a non brainer to me…unless you know something different ? Why on earth would a Government trying to attract oil exploration , international aid and development finance want to screw up its relationships with Western Governments by refusing to honour an agreement which Kenyan will generate billions from . Very short sighted may I say !
@JMAX This project is very likely to be sanctioned in my opinion. The economy badly needs the revenue …but the smell of corruption and manipulation is self evident in Kenyan politics
https://www.theguardian.com/global-development/2023/aug/29/money-down-the-drain-scandal-of-kenyas-failed-dams-reveals-a-country-drowning-in-debt
If Lokichar is developed on a smaller scale as a trucking operation it will be massively cash generative for all parties. The Kenyans may well be stalling making a decision on their back in rights because that will trigger a requirement to make cost contribution. I would not be surprised if they were holding back hoping a new partner would take some or all of that obligation off them . If you read the link , this has been their modus operandi on previous capital projects. The Kenya project is worth an awful lot of money at current oil prices…few more months should do it !
Hi antonvb . If you want some concrete costings of the 2000bpd proof of concept EOPS programme you will find them in this report. Obviously when the volumes increase there are many ways of making this more efficient….with a heated pipeline, refinery or any number of combinations linked to the LAPSSET Corridor Development . Personally , a 120kbpd pipeline with a tariff of around US8-9 per barrel would the most efficient option , but for such a capital project we will probably need to appraise a few more of the fields .
https://www.tullowoil.com/application/files/1015/8490/6130/1654017-722_a-2-esia-non-technical-summary.pdf
@Scrodingerscat. Spot on. The anal ysts seem to have “lost the plot” as I highlighted many months ago with their forecasts. Tullow Factbook confirms capex spend of US$250m ( US$380m 2023 ) for this calendar year while some analysts had penned in $500m each for the next two years. Then considering decommissioning one off costs for Mauritania and UK of $40m, fall away in 2025, leaving just $20-$30m provision for long life assets in Ghana . Tullow has even said that if the oil price was to fall substantially they could still maintain production from existing wells without any major capex for the next to years I believe.
So the increase in production, the loss making hedges off the book in May 2024, Ugandan royalties from 25/26, a $130m reduction in capex for 2024 and decommissioning costs behind us for the foreseeable future from 2025.
SO cash generation, depending on oil prices , could conceivably reach $500m for 2025 , but will no doubt be impacted by the plan of development of the Ten field and potentially Kenya development costs which might have some front ended infrastructure …. Most people also appear unaware of the fact that the FPSO charter in Ten reduces from circa US120m to US$50m in mid 2026. All in all , I would not be surprised to see cashflows per annum close to $500m in 2026 and a share price north of £1.30 subject to a clean refinancing of the bonds , the tax tribunal dismissing the majority of the bs claims and an average oil price $80 per barrel .
If the Kenyan project is farmed out ,Tullow should have another step up to the £2+ level …even if the project starts off as a simple trucking operation of 20kbpd. The enormous past costs recovery will boost the balance sheet as soon as production begins.
Its funny how everyone things a stock with a market cap of £400m is boring when in two years it should be on a market cap of one times cash flow even as it uses its cash flow to pay down debt and not reinvest. I thought the shorters would learn the lesson from the Glencore facility which is subordinated to the existing bonds. The shares might look exceptionally boring for a month or two , but rest assured there is the potential to wake up one morning and find you have just doubled your money.
Lastly , remember Tullow pays an exorbitant amount of interest on its bonds…any large acquirer would probably have cheaper financing opportunities ….plus this looks a sitter for private equity funds looking for high return plays.
@JMAX No it isn’t . None of you bears thought that Jubilee could sustain average production at 100k gross for the rest of the decade with just 3-4 wells a year. The latest note from Braverton tried to claim production would be 80kbpod. Totally clueless ! All of Rahul’s pronouncements on debt levels are based on the status quo. Kenya is enormous and any reasonable partnering agreement and this trebles or quadruples the share price IMO (assuming current oil prices)…you can hardly say with the project at FID submission stage that this is improbable. He also outlined three other assets which could drive material value. The branch profits tax case is a joke…it is excluded from the PSC by stabilisation clauses and I understand the Ghanaian Government has failed many times in the past to levy it.
I think that several funds have shorted the stock to buy back off the index funds when it exits the 250 shortly.They have to keep the price down while they repurchase . Total manipulation
“These important facility upgrades put us in a strong position to maintain production in the range of 90-110 kbopd towards the end of the decade.” Stick that in your pipe and smoke it. Every single analyst will have to upgrade on the back of that statement if they have a brain…in my opinion of course. SA
@Monopolyman Rahul has not run this Company into the ground…in my opinion he is running it like a private equity concern, oblivious to the share price but perfectly competently. The lack of capital markets days or proper forward guidance , combined with the existence of two bonds with short term maturity dates have put the company in a straight jacket as far as paying down debt rather than growing the Company. There is tremendous value in both Kenya and Ghana…if Rahul can’t demonstrate that to shareholders , he should go. An opportunistic bid or cheeky merger proposal is almost certainly on the cards if this fiasco continues. I can’t be bothered anymore to support the Comoany after the management have ignored shareholders and presided over the destruction in the share price. Rahul, if you are reading this…explain what is going on with our key upside assets…you are a custodian of the company assets…they are not yours . You may have difficulties negotiating with host governments and not want to be held accountable, but shareholders demand to know what is going on with their company.
Hi Anton, this Brian Ngugi article seems very opportune timing….
https://www.peopleperhour.com/freelancer/business/brian-ngugi-seo-content-writer-nvxxnvw#reviews
I am sure he is a very honourable gentleman…available for other peoples projects at a current rate of $25 per hour according to the link dated Feb 2024 on this website. Mmmmm . First the Brevarthan report from self declared shorters saying production is about to crash in Jubilee which turns out to be incorrect according to Kosmos and now despite being in the last throes of a reaching Kenyan Parliamentary sanction for the FDP approval , we are told by unknown sources there is a “technicality” by a freelance journalist. Funny that. I suppose if you assign all rights legally in a participating interest , everything ultimately requires a sign off…but that should be straightforward in most countries. Luckily we only have to wait less than two weeks for our update. Kosmos clearly sounded very positive about Jubilee in terms of increased reserves and future capex opportunities…so I am looking forward to hearing the facts for once.
@Jbond . Taking your logic..all companies need to bring their debt levels down to zero before they can grow ! (Well slight exaggeration). I did appreciate your commentry on the bond issuance so thanks for that.
Not sure how skillful your evaluation of Kenya is but it is true to say the 2022 accounts made it sound like a done deal so I can sort appreciate your dark humour. The facts are that the company is awaiting approval for an FDP with US$2bn of sunk costs .the majority of which are written down. Then we have a future royalty stream from Ugandan production in mid 2026 , which based on normal oil prices for a credit counterparty of equivalent stature might start to look like a valuable piece of paper, especially in a lower interest rate environment.
Your comments seem oblivious to the background music of corporate activity, be it the failed Capricorn merger or being the underbidder for some Nigerian assets a few months ago. The fact is that Tullow’s rapprochement with the market might be a simple divestment or reduction of a working interest away. I am sure as time goes by Rahul might be believed when he says the refinancing of the bonds no longer concerns him (or words to that affect). The true scale of the cost of capital is being obscured by these wretched convertibles. I personally believe the Glencore facility now allows them to sort out the 2026 without being finessed by the subordinate 2025 holders as has been shown on past negotiations. In fact selling forward production with greater security is a credible option used extensively in the industry.
Yesterday the CEO of Kosmos commented that the Jubilee field keeps getting bigger and bigger and booked 104% reserve replacement against the asset. Think of that…an entire year of Jubilee production added to the reserve number. All of a sudden the odd $2bn of Kenyan cost recoverable, the potential for major savings on a refinancing of the bonds on a lower coupon, a delevered balance sheet, royalty streams from Uganda , an FDP for Ten or simply selling a small interest in Jubilee and we are all laughing . The lease on the Ten FPSO also reduce by approx $70m in mid 2026 and is renewable annually with Modec after its 10 year charter expires. So much as you all have my sympathy ….go ahead and sell ..just dont come back moaning when the JMAX crew steal your well earned lunch….and If any of you can find a company with a better long term cash flow yield let me know …I’m listening . Sorry for the rant . Love to all. SA
Hi Anton. We have not heard a squeak out of Brevarthan Research. Their latest update on the 20th February , which is full of disclaimers including such information as “the author has a short position” (you dont say) …highlighted their view that they saw a steady decline in production from the below 90k gross level shown in December 2023…which we believe is continuing into 2024….averaging 74kbod for the year…and exiting the year (without new wells) at 60.5kbpd. With the new wells adding their guestimate of 4,000 barrels a day of incremental production per production well…they estimate production at 86kbod or 33.5kbod net to Tulllow.
Judging by Kosmos guidance suggesting the Jubilee drilling campaign was successful finishing 6 months earlier than planned , they achieved 104% reserve replacement and would be at 100k gross + as the second producer comes on line this week, Brevarthan look decidedly foolish in my opinion. Maybe as they book their profits from their short position others might ponder the rights and wrongs of this “research”. Normally publication of these numbers would be open to scrutiny by the regulator because they deviate so much from guidance, but Brevarthan have been careful to take publicly available published monthly number from the Petroleum Commission of Ghana, make little correction for voidage replacement successfully re pressurising the field and then add a low productivity number for new wells which they have providing incremental production of 4kbod per well.
When Tullow reports, I would expect an apology from Brevarthan….I doubt if the Company or anyone else will receive one. They will no doubt claim that it is their job to be prudent . Hopefully Tullow will reflect on the moronic decision to not be more open about their situation. It is no doubt difficult dealings with host governments but to ignore the huge upside potential of assets just because they can’t predict the timing of when field developments will be approved leave the Company wide open to a takeover. The cash flow yield must attract the private equity players…especially if interest rates start to ease off. Imagine the cash flow yields to someone with half the cost of capital . Its a no brainer from my point of view ..but then again i own the stock !
Kosmos languished a little yesterday owing to further delays at their Tortue gas venture with BP..they certainly sounded positive at Jubilee identifying it as a key potential play for further investment capital . They confirmed Ten guidance at 16.5kbod even without any new wells or approval of the submitted plan of development.
OK, now you have given greater clarity…let’s remember “full development” , subject to Kenyan Government approval , would allow for full cost recovery of costs to date including past exploration. Whilst I agree with you that a partner would probably want to fully appraise more than the four main fields where initial production is expected to commence from before paying for a 120kbpd pipeline , a trucking operation would be extremely profitable …this is already proven post the EOPS exercise. To lower pipeline tariffs, field optimisation would most likely require a 120kbpd pipeline…as opposed to an 80kbpd originally suggested. I believe one of the main obstacles was weaning the Government of its aspiration to have a local refinery included ..which is unlikely to find a funder. Now Tullow have increased their percentage to 100% , the project economics suggest an NPV of $1bn net to them from even a small scale operation. The issue of break even on a fully costed basis is totally irrelevant with the current market cap. Without a partner Tullow would be unable to fund the pipeline ..but substantial cash flow could be recovered from this investment ….even on a small scale.
@Slift “Today, it's more like $60-65+/barrel. With increasing break even, the development of Kenya is becoming more and more uneconomical. Which is why Total and Africa Oil relinquished their stakes”
Suggest you read what you have posted. Are you saying that a trucking operation has a cash flow per barrel operating cost of $65 per barrel ? Do yourself a favour and ask Keith Hill his opinion ? I think you will be surprised what he has to say ! Let’s see this one play out. You are entitled to your opinion like everyone else…but when you make factual statements I will ask you to account for them .
Sorry, there is no edit function on this site…which is ridiculous. i meant to say, ..who says the Kenyans will be happy to walk away ?
Who says the will be happy to walk away ? What planet are you on? Have you read the tweets of the National Oil Company of Kenya who are doing presentations right now about the development plan being put to Parliament whilst EPRA consultants are weighing up their exercise of back in rights. Over in Turkana locals are registering claims on land around a proposed pipeline so that they can potentially participate in compensation mechanisms. Meanwhile the Braverton bear note which seems to infer a negative spin from rising injection rates. On the contrary they are a sign of higher production in a waterflood managed reservoir at Jubilee as you need to replace each unit of increased production to keep the field pressurised . Their 80kbpd gross production at Jubillee forecast for 2024 is looking ridiculous. With gross Jubilee averaging over 90kbpd in the 4th quarter despite reservoir pressure declining from two pieces of equipment (which have now been repaired) ..and five wells coming on stream in 2024 (two already online now) . I think their research is highly suspect .
Now who’s telling little porkies . The break even has been quoted to be $25 per day.
https://nation.africa/kenya/business/we-can-t-break-even-at-less-than-25-a-barrel-says-tullow--1169290
From my rationale to invest, if Tullow just offset revenue against prior costs of field development it should be worth a small fortune. Even a basic trucking operation of 20kbpd ,followed by the building of a pipeline, as resources are proven up is an attractive (but not optimised) solution. Do not forget that cost recovery could mean a technical loss on the total capital invested on the project but a significant driver of cash flow as those high costs are recovered. The bears here are losing the argument …why would the Kenyan Government be considering back in rights for an asset with no value?. Think about it. It is just like Kosmos writing down Ten reserves , then wanting to participate in a high graded drilling programme and FDP. I note that Jubilee has just had another upgrade …despite a years production !