Member Info for Slift

Agree Beetham,

I think Tullow specifically mentioned Rahul's experience at Cairn India in pipeline delivery at costs less than $5/barrel.
RNS of his appointment:
"During Rahul’s tenure, Cairn India delivered operated production of over 200,000 barrels of oil per day with operating costs of less than $5 per barrel of oil. Cairn India also successfully delivered over $5 billion of development projects including the world’s longest heated pipeline at a finding and development cost of less than $5 per barrel of oil."

Here's the pipeline delivery by Cairn as covered by BBC: https://www.bbc.com/news/10321742

The Kenya pipeline to Lamu is similar distance, and maybe Rahul can use his expertise to reduce the costs here too.
https://gyazo.com/844c040ea52f93de0d5fe647b835ac41

bransonbull,
"averaged" is a keyword there that they have used to make figures look better. They have included the ramp up process following shut in (which had lower watercut due to lower rates).

Slide 9 of H1 presentation provides more clarity.
oil production as it stands: c. 15k bopd
water production as it stands: c. 3.3k bwpd

So 18% watercut

Megla,

"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."
I've addressed this before, Tullow is able to control when they plan to use CAPEX. Tullow will be submitting to the RBL when they will have CAPEX/OPEX over the 18 month period.

My numbers only shows the basis of accumulation. Tullow will have over $200m liquidity until July 2022, the last month of the liquidity test. But even in July 2022, Tullow is able to show over $200m liquidity by moving majority of CAPEX to H2 (opposite of what they have done this year).

"so why try and spin a narrative that they can pass?"
I'm not trying to spin a narrative at all. I've already stated that IMO, it's a risky situation. But remember the January 2021 RBL was VOLUNTARILY requested by Tullow. I'd like to know your thoughts as to why they would do this if you or the company thinks it's a problem.

ALL IMO.
Slift.

bransonbull,
"15% in August vs. 12% reported in June"
Well 6 is at 18% watercut currently.

"Anyone have a clue how.much additional production and longevity the water injector would buy? How much bang for 75 million usd? This is a crucial question.."

According to Hurricane, bubble point will be reached in H2 21 due to flowing pressure. My estimate is showing around July 2021 using figures available.

The below is assuming water injector is not installed:
Assuming 13k bopd until then, that's circa. 4.8m production. From there on, the wells will need to be choked to minimise gas production. The limiting factor (assuming water injection isn't commissioned by then) would be the AM flaring limit from here onwards.
On a static pressure basis, bubble point will be reached around Q3 2022. So technically the Lancaster EPS can produce at lower rates (limiting factor being AM flaring limit) until then. And also, may or may not be economical here. But in HUR's case, they have assumed it to be economical (hence why they have said the reserves are subject to economical limit). Or in otherwords, they have assumed 10k bopd from H2 2021 to Q3 2022, totalling the remaining 4.6m barrels of reserves.

The water injector will likely provide pressure support for the entirety of the EPS (i.e. the 6 years until 2025). Again using the above in terms of being able to produce 10k bopd for the remainder, reserves upgrade will likely be c. 8.2m barrels. Giving total 2P reserves of 24.2m barrels (ofcourse 6.6m of this is depleted).

But again due to the economical limit (depending on oil price to breakeven), unless HUR do something about the watercut (i.e. sidetrack, drill new well etc.), the reserves are again subject to downgrade.

Slift.

Showsnowman,
"if yesterdays meeting with TOTAL & the Ugandan authorities went very well."
Yup, good news for both Total and Tullow.

But as Tullow have stated, I don't believe we'll see completion of Uganda sale until at least next month. Ofcourse, i'm not going to say no if it comes earlier.
In the meantime, i'll be looking out for:
- Oil price, demand/supply and the OPEC JMMC meeting scheduled for 17th September
- Director Buys
- Holdings Updates following the HY results
- Moodys re-rating
- And any other farmdowns/trading updates

GLA.

Reckon PlantedBHA is a winner.

"So.. apparently well 7z has the capability to go against density, viscosity and Stokes' Law concepts to "cone" oil from above when "flowed at higher rates".."

Just for clarification, ofcourse coning from above is possible. But in 7z case when it was at the OWC, wtf? Is that even coning??

adoubleuk,
Beverley is the "competent person" for the technical review.
I don't believe that she believes in the FB story. So why did they recruited her?
Also, it was clear that they handpicked questions that she knew the answer to.. afterall, several questions were "good questions".

adoubleuk,
"AM is currently producing from well 6 alone, at around 15,000 bbl/day"
Also producing c. 3300 barrels of water.. or 18% watercut.

"I don't believe their 'reverse-coning' from the overlying sandstones theory for a millisecond."
From the Technical Review: "This well is believed to be "coning" oil from above when flowed at higher rates"
So.. apparently well 7z has the capability to go against density, viscosity and Stokes' Law concepts to "cone" oil from above when "flowed at higher rates"..
So why have they continued to reduce flowrate from this well?

JoeSoap,
"because I understood her to say"
Strange.. I understood her to giggle and fuss about like an inexperienced director.
All at the cost of shareholders.

Slift.

Cluelesstim,

"And regarding April 2021 amortisation, it has obviously not been completed"
See previous post regarding circular and this amortisation.

"Even Guyanas estimate we hold on our books is 47mmboe from Apr20 presentation"
Guyana's resource is now 54.2mmboe (probably addition of Carapa). The reason why this resource is low is because of heavy oil. Recovery % of heavy oil is much less than light oil due to viscosity and also due to economics regarding refining this oil. But the fact that Guyana has been included as a 2C resource means that IT IS RECOVERABLE (according to the SPE Guidelines for Evaluation of Reserves/Resources).

Dubaidave,
I'm not trying to convince myself at all. I've stated my concerns.
I have also stated my position, as you have yours.

GLA.
Slift.

Longish,
"probability is for Moody rerating"
Yes, I'd expect a Moody re-rating in the next 2 weeks. But like you say, they may hold back until January re-determination. It has certainly put spins in the works.

Megla,
"link to circular that shows the April 2021 redetermination has been completed"
It has been reduced to $2m reduction in April 2021.
Circular, page 52: https://www.tullowoil.com/application/files/6715/9247/0563/Circular_Final.pdf

"I’m still confused as to your logic. The company has already told us they’ll fail the January RBL liquidity test."
The way I see it is through a simple material balance equation: Input - Output = Accumulation
Input = Liquidity
Output = Financial commitments
Accumulation = What's left over

So for January re-determination:
Current RBL capacity (as April 2021 amortisation has been reduced to $2m) = $1979m
Debt capacity = $1914m

So the inputs:
Undrawn liquidity = $409m
Cash and Cash equivalents = $236m
Uganda sale = $500m
Uganda FID = $75m
Uganda CAPEX return from Total = $15m (omitting this as may be included in FCF)
FCF = Breakeven (but at Dec 20 = +$212.5m cash to Tullow)
Total = $1432.5m

Outputs:
CAPEX, OPEX, other operational commitments = Covered by FCF breakeven in 2021 and 2022 (i.e operational income)
Convertible Bond = $300m
Senior note = $650m
Amortisations = $424m reduction in undrawn liquidity
Total = $1374m

Accumulation = +$73.5m

So here, the current undrawn liquidity is cancelled out by amortisations, hence why I have not included them.

What the above is showing is that Tullow WILL have enough liqudity to pass the test, assuming all the above is true. But like I mentioned earlier, there are certain aspects that is out of Tullow's control - i.e. oil price, FID completion, return of CAPEX from Total. It'll be up to the RBL to decide based on the oil price etc whether Tullow will have liquidity for financial commitments.
Obviously ASSUMING BREAKEVEN cashflow for 2020, 2021 and 2022 and all above completes , Tullow WILL have liquidity.

"forecast a potential liquidity shortfall"
This statement is because the forecast is damn close in achieving the shortfall.

"Tullow have said they’ll fail the January RBL liquidity test"
"potential" doesn't mean that Tullow will fail the liquidity test. Even so, there are other options Tullow are currently seeking, just to be 100% certain.

Slift.

Cluelesstim,

"So not sure where you and Megla are getting FCF generation by the business in excess of $200m for 21/22"
I'm assuming breakeven FCF in 21 and 22.

Regarding amortisations, I have considered them within liquidity, but since the undrawn facility (liquidity) will be reduced with amortisations, it cancels out.

Around covenants:
I think you'll find that covenant ratio will be lower for Dec20. Net debt to year end will be c. 2.3-2.4b (assuming Uganda completes, or c. 2.8b if not)
Then you have EBITDAX for H2 which will be higher than H1.

Slift.

Megla,

The circular states that the amortisation of the April 2021 redetermination has been reduced in June.

"Slift, don’t follow your logic."
The undrawn facility liquidity will be reduced via Amortisations. So lenders will take that into account.

"if you remove those facilities then liquidity is reduced, hence why it must be included."
Yes, but Tullow is expecting to FCF breakeven this year. Which means that removed liquidity is effectively replaced with cash (as +$212.5m cashflow in H2).

Slift

@BashRisks,

Ivory Coast has been reliable at producing 2k bopd. They may choose to to sell it in the future, but also remember that Tullow has exploration assets here too. So wouldn't be worth selling now as they may need the infrastructure.

@Megla,
The April 2021 Amortisation has already been completed. I've omitted October 2021/April 2022 Amortisations as these are not repayment, but reduction in commitments (as it stands with current borrowing from facility).

Slift.

Tony,

Tullow did previously state that they'd want to farmdown to 30% before any well drills. I think Tullow has time to farmdown Guyana. No well drills here in FY21, so would only accept good offers. I think License commitments for the Guyana blocks are extended too, so plenty of time.

It'll be good if Tullow farms down Suriname 20% before well drill. But might be too late to even consider now..?
It will help Tullow big time, not only will they get proceeds for this, but also reduces their well cost (if already not covered by farm in JV) by c. $11m.

Slift.

CaptainSwag,

Yes true, but I don't believe Lancaster will be viable (i.e. produce over 10k bopd) until Q2 20.

Assuming 90% uptime (also, notice how Hurricane changed uptime to 95% to make figures look better?), well 6 would need to produce 11.1k bopd.

I mean guidance for production rate for H2 2020 is 12.8k - 14.2k bopd. Guidance for production rate from Sept to Dec is 12k - 14k bopd. Both assuming 95% uptime.

At the lower end of the guidance.. well 6 will just about produce FCF. With increasing watercut, this figure will drop down more.

They sure have been "conservative" with the reserves and resources downgrade.. but haven't considered that for their operations or production. Nice.

Slift.

cluelesstim,

Regarding Sept 20 RBL, this will pass. I don't think Uganda is necessary here, but obviously helps. Tullow should have enough liquidity either way. What Tullow has is the ability to control CAPEX.
I.e. They are able to move CAPEX expenditure between H1 and H2 so that their liquidity remains robust.
Obviously the Suriname well is in H1 and will require c. $55m as rig has been contracted, but everything else should be fairly easy to move.
But it's up to the lenders to decide, and i'm sure the September 20 RBL is an easy pass for Tullow.

Now regarding Jan 2021 RBL, key sentence:
"If the Group is unable to demonstrate to the reasonable satisfaction of the relevant majority of its lenders"
Tullow does have liquidity, but it's cutting it short and there's potential shortfall if projects move around that is out of Tullow's control (i.e. Uganda FID).

Here's a breakdown assuming Tullow has FCF breakeven in 2021 and 2022:
Cash/Liquidity required: $950m

Cash in bank at H1: $236m
Assuming FCF breakeven in 2020: +$212.5m FCF
Cash from Uganda sale: $500m
Uganda FID (and assuming completion before Q4 21 for safe measures): $75m
Uganda CAPEX return: $15m
Total: £1038.5m

Things like FID and Uganda CAPEX return are not up to Tullow, and this liquidity MAY not be available during the testing period.

So if you take these out, you have total cash/liquidity of $948.5m. The RBL may not care about a couple $m shortfall, or tullow may be able to find this elsewhere with ease.

But there's more to this. FCF breakeven depends on production and oil price. If the RBL decides that oil price is going to struggle going forwards, or that Tullow will not breakeven, then we have this as a problem too.

But given Tullow's HY20 performance, we can assume Tullow have got production guidance under control, which will certainly help Tullow's case regarding production.

If you refer back to FY19, one of Tullow's Business Review:
"Greater Group control of operations and production forecasting through appointment of Mark MacFarlane as COO"
This was to mitigate the guidance miss as experienced in FY19 - which significantly impacted RBL re-determination.

ALL IMO.
Slift.

SpruceGoose2,
Yup, I don't expect to reinvest here either, but I will follow this company I guess to remind me of the damage haha.

Good luck to you!

Bransonbull,

I ended up selling my holding today. I would have accepted a 50% downgrade in Lancaster resources and circa. 30% reduction in reserves. But the board completely destroyed this company and shareholder value.

Whether they are right or wrong, I don't know. But they come across amateurish in the presentation. They don't care about shareholders until they require an investment.
This is clear if you turn to slide 21 of the H1 presentation.
Hurricane have put G&A in the inner circle for "business continuity" and stakeholder engagement in the outer circle as "license to invest".
G&A = their wages.

A lot of crucial information was missed or avoided by the board such as:
- How will they finance the bond for maturity in 2022?
- What production do they expect in 2021?
- How are they addressing the watercut issue? 18% watercut in 6 well now
- What makes them think that there is significant potential upside for stakeholders?
- etc.

IMO, average production for the year will now be < 14k bopd. Probably lower end of their estimate. Their liquidity is concerning.

The forward activity programme of water injection system planned for 2021 will likely not increase production rate. They will ALSO need to side track well 6 or 7z still to increase production rates. However, the water injection will enable well 6 to continue production at higher flows by keeping bubble point in check.
So yes, this will increase the longevity and lifetime of the well and hence will move 2C resources to 2P reserves. But at the increasing watercut, the addition to reserves may not be that high. Again, another uncertainty now.

Not many companies would want to takeover Hurricane now either imo, so even that is destroyed due to massive downgrade in resources.

I've said that this company now reminds me of Pharos Energy (a £50m mcap company). Here's their presentation for comparison: https://www.pharos.energy/media/p5gnxr5w/pharos-overview-_-august-2020-_final.pdf

But for those that are holding, there MAY be upside following Hurricane confirming the plans to increase reserves. But I don't think many of you will even see breakeven until oil price rises above $60+/barrel and until oil glut goes down. I personally don't think value above a market cap of £200m will be seen in the short term, medium term, and MAYBE even in the long term as it stands.

Just IMO.
Slift.