Member Info for seakingalpha

Ammu123

The hedging was a requirement for the bond refinancing . Hedging is mandated on a certain percentage of scheduled production forecasts. The company also keeps some exposure to the upside with caps and collars. What you seem to omit from your incessant postings with identical content ..is that additional production of 5kbpd is likely to come from exercising pre emption rights against the latest Kosmos acquisition which is understood not to be hedged.. Neither is any potential production from an additional rig being deployed at the end of 2022, which was heavily inferred in the latest update by Kosmos. I also suggest you listen to the latest webcast from Africa Oil where Keith Hill believes there is a serious prospect of securing a Kenya sale of their 25% working interest . He went to Kenya last week and suggests a ball park $1 per share or more for Africa Oil shareholders …terms may be finalised next quarter …which is roughly equivalent to just under 40p per share to Tullow shareholders. Lastly, hedging is an ongoing process. It is obvious you do not understand that PSCs often discriminate against windfall oil prices with tiered participation reducing net backs …it is far more important to develop the asset base to monetise the life of field reserves . Rahul , with certainty of cash flow from his oil hedges is able to make long term planning decisions and secure funding . Kosmos reported a 2 year payback on its purchase of assets from Oxy….would Rahul had the balance sheet to have pre emptied without the hedges in place ? I doubt it . Have a great weekend everybody and try not to be flustered by the teenage scribblers out there .

It only needs confirmation of a second rig towards early 2023 and movement in Kenya discussions to send this share much higher …IMO. Previous guidance has always suggested a $1 net back per $5 increase in price , when oil price realised reaches higher levels. There will be much greater impact from the extra production. Advancing sub sea infrastructure to reach stranded reserves will allow proven reserve upgrades and might enable greater efficiency and flexibility in controlling GOR in certain parts of the field. More importantly, after the latest conference call ,where Rahul suggested he is looking at refinancing the debt next year (presumably on much improved terms), the production profile, interest cover and reserve base will look a lot more attractive to lenders.
If nothing gives , except a sliding share price in the short term , the cash flow yield from the second half of 2023 should look insane assuming $70 oil. This may attract private equity bidders with stronger balance sheets if the Company does not have the common sense to look after its shareholders with dividends or buybacks.
Do not forget at $65 oil this company has previously suggested it has an abundance of well inventory with 70-100% IRRs. Rahul often talks about 20-25% well depletion from mature or relatively close by infill wells. When Tullow first drilled on the licence a decent number of wells had 14-17kpd volume and showed a little decline in the first three to four years. As analysts see the contribution from a new field in Jubilee and Ntomme I think we will all be very pleased.
Lastly the preemption entitlement linked to the Kosmos acquisition,which is effective from the 1st April 2020 , should see Tullow acquiring circa an extra 5 kbps of additional unhedged production on an adjusted cash flow multiple of one …it also gives them over 50% of Ten, which will allow a much shortened decision process on field development.
So please lets forget about the potential for a $10 correction in the oil price especially considering our conservative hedging profile…longer term the prize of increased production at insane IRRs is staring us in the face. Remember, also this years free cash flow is impacted by decommissioning costs which will be substantially lower in coming years and a MASSIVE subsea capex investment which is deliberately front ended to fully exploit life of field reserves. I would be very disappointed if the shares were not nearer 200p over the next two years….even with the ESG mafia trying to stymie the E&P sector !!!

Rahul made it quite clear in the conference call that the free cash flow number was to a large extent discretionary…when they mentioned $65 c/f b/e it was because they were accelerating capex spend subsea …but the field development plan … has not changed in terms of overall number of wells . It is entirely sensible to drill out as quickly as FPSO off take capacity will allow so that reserves in the ground can be booked and produced before licence expiry . Anyone who cannot understand this needs to think a bit harder !

Rahul, is doing all the right things but he as to add them up for the analysts. Imagine if he kept capex at previous guidance but just paid off the debt with extra cash flow….the analyst would probably not have lowered their valuation? ….but by investing the excess cash flow in subsea capex as a pre cursor to accelerating the drilling programme and switching one new productive well from Jubilee to Ten (where there is a small delay putting online) it tweaks the NPV down. On the plus side , with twin manifolds and other extra subsea and topside processing facilities in place, the forecasts for coming years can accommodate a larger drilling programme.

Joek1. Kosmos has also acknowledged upside in Ten field. The problem was that Enyenra had complicated multi zone channel sands..whereas Ntomme is much more straightforward. We should be able to drill some decent producers . Rahul said impact of both injectors should be felt by mid year 2022 and production can be increased in 2023. Potential to grow significantly with 2nd rig.

Thanks for update Joek1…but you missed an important point…the Ten producer will not come on stream until 2023…where Rahul stated that Ten production would start to rise. How many analysts are anticipating production growth for Ten ? This will be very bullish for their modelling.

When you have reserves that need to be produced during the lifetime of a petroleum lease…your development costs are front end loaded. The Jubilee shut down in April to upgrade facilities with significant associated capex and the last year of major decommissioning costs elsewhere is the reason cash flow is stunted this year …but this will not be the case next year.
I think when analysts work out the cash flow in subsequent years you will be surprised . Spending approx $300m on the Ghana fields , with all the benefits from three wells in Ten not showing through until the following year , should not be overlooked. Analysts previously were anticipating declining production …when clearly that will no longer be the case.

Nice of management to just confirm now that Ntomme 06, which was a gas injector, happened to find oil at the base of the well…extending the oil field North much further than previously envisaged ! That means at the very least a transfer of 2C to 2P reserves? . It could be quite material to the next reserve report. They only own 54% of the field for goodness sake ! As for not bothering to guide on next two years production profile leaves the upside materially understated in my opinion. Kenya sounds a binary outcome but looks very promising at current oil prices could be worth 40-50p per share uplift is they partner on sensible terms .

Tullow preempts to a lesser percentage in Jubilee owing to how both fields were unitised many years ago. Ten actually is a tremendous asset but needs more subsea infrastructure as the ITLOS dispute delayed investment. As soon as Rahul has a work programme agreed (he is now in complete control as operator with over 50% working interest so no problems there) he can start to bring the field up to potentially nameplate capacity by drilling 6-8 wells ? over two years. Current guidance is for two strategic wells by 2023 but I am sure the management will focus on the highest IRRs in their inventory . Previously they have prioritised Jubilee South East and North East ? now the percentage owned of Ten make the drilling programme more interesting. If ever you wanted proof that the market is dysfunctional, it is the muted reaction to todays deal. …IMO of course.

Once people work out , that netting off cash already generated post the effective start date of the transaction and then selling forward new production for twelve months…… almost pays for the whole transaction in its entirety at current oil prices…they will be amazed how accretive and low risk this transaction is ! What a deal. The UK market is half asleep. Fund managers need to go back to school and kids need to learn about cash flow return in investment…..not ponzi cryptogarbage.

@Slift. The pre emption provisions should be the pertinent and overriding requirement…but I guess we will have to see .

@Slift. In most situations like this you have 30 days from receipt of the sale and repurchase agreement. The latter document often takes a little longer to be formally approved… hence I would not be surprised if Tullow has between 3-4 weeks to make its decision. The more the delay the better for Tullow as they can monitor the performance of the new wells that have been drilled and net off production form the purchase price. I also think the opportunity to forward sell short term production to a trading entity like Vitol or Trafigura would be a no brainer if they switched on.

The revised work programme have transformed the project economics in Kenya….the Government are keen to make progress so no reason why potential partners would not want to take on this project. The use of geothermal and wind power is running the facilities and the extended water distribution to local communities who will have a decent stake of the revenue means that only a few outstanding issues remain to resolve. On any sensible proposal Tullow might be able to get back hundreds of millions of past expenditure as well as payment for the resources base. The question is will they sell out completely , which i believe is the stated objective of their partners Total and Africa Oil Corp or still try to retain a carry on some production.
Either way I would be very disappointed if we did not achieve an enterprise value of between $700m to $1.5bn for our share. If any such transaction occurs Tullow could pay down debt, refinance on far less onerous terms and start paying either special dividends/buybacks or a combination of all the above. Kenya’s value has been almost totally ignored in most analysts calculations ….arguably there is only really upside …unless the Kenyan government want to prevaricate or not approve the FDP…..which would not make sense .

StanleyPro In reality it does not work like that. If oil prices allow early debt repayments then the debt can be renegotiated/rescheduled on better terms. If Kenya is farmed out or sold , which is likely as both Total and Africa Oil see the project as non core to their plans , we could see considerable capital appreciation . Also a farmer out of the Guyana acreage for a carried interest looks a distinct probability .

Jubileey . As you are one of these posters that feels the need to make the same point over and over again I feel i should at least put some balance into your thoughts. It is my understanding that 1) the partners in Uganda would have all had to “chip in to the cost of a pipeline “ resulting in a fully cost “price per barrel” of several dollars not the one dollar you keep mentioning . I do concede that they would be able to charge a Tariff for the pipeline but with out any other resource they are the only ones paying it !. 2) In comparison to the Kenyan PSC the terms of the Ugandan contract were considered less favourable on higher prices. We now know that the break even for the Kenyan project has been lowered to $22 per barrel and the reserves upgraded .
3) The Ugandan and Kenyan Government have both been guilty of trying to revise licence terms …but Ugandan election farce and the slow progress to commercialise the asset because of added government demands like paying for a refinery and making Tullow collect CGT for other oil companies suggest that the Government is not to be trusted.
4) If prices remain at these higher levels ..then Tullow has a valuable royalty above certain oil prices which makes your $1 jibe rather redundant.
5) If you sell an asset and redeploy the assets into IRRs of over 100% almost immediately and then compound that cash flow…you have hardly lost any money but taken control of your destiny
6) The requirement to sell an asset in order to refinance the bonds was pretty obvious…what other asset could they sell at a sensible price when oil prices were $30 per barrel ? We can see that the Anadarko interest in Ghana did not realise an attractive multiple either at the time head of terms were struck six months ago……producing assets are now extremely profitable and thanks goodness the management did not sell their crown jewel or lose operatorship of the fields by a partial sale or royalty deal.

So in conclusion, Total did get a “bargain” during a period when there were no real buyers of African oil projects…but if Tullow had tried to hold on to the project Museveni could have carried on frustrating FID and Tullow would not have been able to refinance. Luckily Tullow had a superb prospect inventory of infill drills in Ghana to drill…if it does not drill those wells it would lose value because the licenses would expire before the reserves could be fully exploited.
I hope these comments put balance and substance to the reasoning of Tullow management . When you are in a precarious financial position you have to make difficult choices but we still have a very attractive royalty should we experience a period of sustained higher oil prices.

Do me a favour …try and find an oil company in Ghana which has paid branch profits tax …then come back and post the details here ! These type of taxes are generally excluded from pscs and stabilisation clauses stop retrospective legislation.

@Showsnowman Kenya is short, not medium term ..the scale of the reserve upgrade was considerable relative to market cap and yet the price falls. Clearly the wrong price right now…in my opinion.

Absolute nonsense. How can buying reserves on 1.4times ebitdax be a failure?. The Kosmos conference call is forecasting 100kbpd production for Jubilee. This deal was done in April when oil and gas was unloved. Kosmos describe it as transformative.

Most of the land has been acquired. Turkana province may be able to haggle over a long term rental arrangement which is how some of these community owned parcel disputes are resolved. If anyone thinks the Kenyan government will allow a major project like this to get stalled over this negotiation …they are wrong…IMHO of course !

Oh yes, and you may wish to discuss what TOTAL meant when they described “3rd Party opportunities” in May 2021 for Laggan in page 9 of that previously provided link:

Toddle Pip !