Member Info for Slift

Credit Rating
A rating upgrade would require:
(i) confirmation that the production guidance reset by management in December 2019 can be sustained in the medium term;
(ii) material progress on the divestment programme allowing significant deleveraging and resulting in Moody's-adjusted total debt to EBITDA falling below 4.0x and
(ii) restoration of a robust liquidity profile.

All satisfied I think. Liquidity concern but requires Uganda sale. Though Moody's may wait until Uganda is completed before upgrade? I expect the credit rating to be upgraded, or not changed.

Director Buys
Rahul mentioned restoration of trust with us and stakeholders.
We will see if there are any Director Buys between now and January 2021 as this definitely works in the companys favour of boosting confidence and share/bond performance.

Slift.

cluelesstim,

I don't believe that I have misinterpretted it.

Regarding scenario 1: Yes, this is true. The liquidity will reach zero when the convertible bond reaches maturity (If Uganda sale isn't completed).
Take a look at this year: In H1 2020, Tullow's cashflow was -$212.5m due to extensive CAPEX requirement and having to deal with other costs to streamline the business (e.g. cancellation of Maesk Rig contract, redundancy/restructure of business costs, etc.).
If you use that example for next year:
-$200m cashflow in Q1 and Q2
- $300m CB maturity in Q2
= zero liquidity.

Regarding scenario 2: Tullow will have enough liquidity to pass the liquidity assessment in January 2021 (assuming Uganda sale is completed).
Tullow does not need to show $1b proceeds just yet. It's necessary for the RBL redetermination in September 2021 though. As assuming the same assumptions below, Tullow will have a shortfall in liquidity of circa. $300-350m in September 2021.

But like I said, Tullow cannot continue like this forever selling assets to reduce debt. The going concern assessment period ends in March 2021, which gives Tullow more room.
Tullow will need to restructure the RBL or seek liquidity from banks/investors with a CB that has a maturity beyond 2025.

ALL IMO.
Slift.

Tony, Longish,

Having relistened to the Q&A on the webcast:
@Tony - In January, It will be determined whether March 2021 RBL re-determination will happen. So still the possibility of it happening.

@Longish - "ensure they have the capital markets strategy fully underpinned" I think this is the secondary reason.. - Tullow will not meet liquidity shortfall in March without further asset sales/increased FCF/Funding/Waiver.
But yes, the performance to date this year will definitely help underpin the RBL redetermination aswell. Also, January would be before the spud of Suriname well. Let's hope that goes well too!

Slift.

bransonbull,
Are you still holding?

Tony,

"The March redetermination has been brought forward to January. Its September 2021 that has the critical test."
No, Tullow are voluntarily doing an RBL redetermination in January (for whatever their reason).
The 6 monthly scheduled RBL redetermination in March stands as far as i'm aware. Ofcourse, the RBL facility may waive this redetermination based on Januarys test, but who knows?

September 2020 re-determination
No problem passing RBL tests here. Tullow has enough liquidity and above net debt to EBITDAX covenant ratios to pass this RBL, even without Uganda completion.

January 2021 re-determination
Assuming that free cashflow is breakeven for 2021 and 2022, Tullow will require $950m in cash to pass liquidity assessment.
Assuming cashflow is breakeven for 2020 (i.e. no unplanned costs and oil price stays above forward curve) and the Uganda sale is completed with FID expected at Q4 2021, Tullow will have c. $1023m in free cash for this re-determination.
Tullow should pass this RBL on the above assumptions.

March 2021 re-determination
Assuming that free cashflow is breakeven for 2021 and 2022, Tullow will require $1111m in cash to pass liquidity assessment
Assuming sale of Uganda completed, with FID Q4 2021 and assuming cashflow breakeven for 2020, Tullow will have a liquidity SHORTFALL of c. $87m.

This shortfall is what Tullow will be addressing at the CMD. This shortfall isn't significant and I suppose this is why Kenya sale was suspended for the time being?

Anyways, several options to address this shortfall:
- Increase debt capacity or waive this liquidity test at the March 21 RBL
- Further asset sales/farm down to cover this liquidity shortfall between Now and March.
- Refinance $300m CB or $650m Senior notes
- Reduce financial commitments (which Tullow have now done with the write offs of exploration assets)
- Get investment from banks/investors in the form of CB following CMD
- Other (e.g. operational/cost savings, rights issue etc.)

Going forwards, to provide confidence and get out of the situation Tullow is in, a restructure of RBL borrowing is required, IMO.

As Megla pointed out earlier, creditors will request some sort of cash raise to restructure. But this cash raise wouldn't necessarily mean rights issue, asset sales are also a way to raise cash. I wouldn't be surprised if this is where Kenya plays it's part? (Ofcourse, this is all speculation).

ALL IMO.
Slift.

September 2020 re-determinationNo problem passing RBL tests here. Tullow has enough liquidity and above net debt to EBITDAX covenant ratios to pass this RBL, even without Uganda completion. January 2021 re-determinationAssuming that free cashflow is breakeven for 2021 and 2022, Tullow will require $950m in cash to pass liquidity assessment.Assuming cashflow is breakeven for 2020 (i.e. no unplanned costs and oil price stays above forward curve) and the Uganda sale is completed with FID expected at Q4 2021, Tullow will have c. $1023m in free cash for this re-determination.Tullow should pass this RBL on the above assumptions.March 2021 re-determinationAssuming that free cashflow is breakeven for 2021 and 2022, Tullow will require $1111m in cash to pass liquidity assessmentAssuming sale of Uganda completed, with FID Q4 2021 and assuming cashflow breakeven for 2020, Tullow will have a liquidity SHORTFALL of c. $87m.This shortfall is what Tullow will be addressing at the CMD. This shortfall isn't significant and I suppose this is why Kenya sale was suspended for the time being?Anyways, several options to address this shortfall:- Increase debt capacity or waive this liquidity test at the March 21 RBL- Further asset sales/farm down to cover this liquidity shortfall between Now and March.- Refinance $300m CB or $650m Senior notes- Reduce financial commitments (which Tullow have now done with the write offs of exploration assets)- Get investment from banks/investors in the form of CB following CMD- Other (e.g. operational/cost savings, rights issue etc.)Going forwards, to provide confidence and get out of the situation Tullow is in, a restructure of RBL borrowing is required, IMO.As Megla pointed out earlier, creditors will request some sort of cash raise to restructure. But this cash raise wouldn't necessary mean rights issue, asset sales are also cash raise. I wouldn't be surprised if this is where Kenya plays it's part? (Ofcourse, this is all speculation.)ALL IMO.Slift.

link in this RNS:
https://ir.q4europe.com/Solutions/Hurricane2018tf/3942/newsArticle.aspx?storyid=14797275

adoubleuk,

Presentation: https://www.hurricaneenergy.com/download_file/force/582/222
Webcast: https://webcasting.brrmedia.co.uk/broadcast/5f439633b14d87262643b3f6

According to the 2017 CPR:
Basement had 2083mmboe STOIIP
Victory had 204 mmboe STOIIP
Rona had 29 mmboe STOIIP

At 22.5% recovery rate provides the previous Resources at c.500mmboe for Lancaster.

Todays 2P + 2C resources/reserves is 74 mmboe.
Again at 22.5% recovery rates gives STOIIP at 329mmboe which is pretty much in line with previous structural closure STOIIP as provided in previous CPR.

Anyways.. my point is, I don't think that CPR would have got Rona or Victory sands that wrong, as permeability and porosity of this isn't new concept and isn't that complex (IMO).
Which means that the new evaluation of reserves/resources gives the Fractured Basement a 2C+2P resources of 22mmboe... or STOIIP of circa. 100mmboe.

All IMO.
Slift.

I do hope this comes good for you all.

I think Hurricane will go through funding options to fund their forward activity programme at the Investor Meet Company.
If Hurricane have already secured funding for this, and are not going to do a rights issue, the share price may tick up.

GLA.
Slift.

Megla,
"they still need mitigating actions in January even with sale of Uganda"
I agree that they do need mitigating actions going forwards, this could be in the form of the "options" Tullow had listed in terms of discussions with lenders to increase debt capacity/restructuring of RBL or even refinancing the senior notes.

But as for the January RBL re-determination, Tullow should be able to meet the liquidity test requirements.

ALL IMO.
Slift.

Oh.. missed one crucial point regarding my statements in the previous post:
AND ASSUMING UGANDA SALE COMPLETES* by YE20.

Megla,

Yes. January RBL re-determination is a very very close one to call in terms of passing the liquidity test. Whilst it is still risky and depends solely on oil price and production being above breakeven free cashflow, I think Tullow should be okay for this.

So I don't think we should worry too much between now and January (if production is in line and oil price isn't too volatile for the rest of the year).

ALL IMO.
Slift.

TimmyG,

Yes, unfortunate with HUR but also was very risky. Following HUR's update today, they are going to need some kind of cash raise or funding in place to continue with their plans.
Like me, glad you got out sooner rather than later. Hopefully you'll be able to recoup your losses elsewhere.

Slift.

"but why were you invested in a company where you base case was a debt for equity swap next year? "
It will be the very last option ofcourse when all else fails (i.e. RBL redetermination isn't approved and Tullow is left with no other choice but to meet the expected liquidity shortfall within 3 months).

Like many, I don't see a rights issue for this company, but I wouldn't put it past Tullow either. I mentioned Q3/Q4 2021 if there was to be a rights issue (i.e. if Tullow can't get funding sorted).

Slift.

Tony,

"non- Ghana assets need $100M, but offer a lot of continued opportunities for a longer run of years."
The non-operated assets are very important going forwards in the medium term. These assets are providing Tullow with consistent and dependable cashflows. There are also opportunities to increase the production here going forwards with CAPEX spent in Ruche and Simba developments in Gabon.
I don't believe Tullow will sell these assets as some have posted on this board.

"The banks therefore have an opportunity of deciding if the proposed new developments generate enough future profit to pay off interest and future debts. In essence the company is delivering a viable value solution and do the banks want to take the risk."
Yes, I agree. Tullow are planning to increase their reserves (and resources). Majority of the CMD will be based on this.
Lenders have an opportunity to increase debt capacity here too. It is "Reserves"-based lending afterall. However, there is the risk of "will Tullow be able to achieve this?". I think the lenders will have to meet them half way of sorts.

"The CEO believes that coupled with efficiencies of just 2.5% is like 45M barrels of oil in production which is 1.5 years additional supply from producing fields."
This will also add in excess of $500m to assets. One of several ways to increase balance sheet.

"I certainly believe the banks would swap the June $300M payment in 2021 for an RBL extension assuming Uganda $500M is paid over."
As it stands, it's not so much paying off the debt that is a problem. As far as i'm aware, the debt capacity can be used to pay off debt, if required. So it doesn't really matter where the $500m is paid into, but It will all likely be used to reduce debt, imo.

"The company still has $75M from a later FID in 2021."
I had 3 years in my mind for some reason.. but if FID is really in later 2021, this will be GREAT and de-risks January 2021 further.

"company is allowed to spend the FID and other 200M from the Uganda sale on all their developments "
Not necessary for Tullow to do this. The company is able to fund the developments from liquidity already available and operations alone.

ALL IMO.
Slift.

"Presentation is already available"
Having listened to the presentation this morning, they were AGAIN reading word for word off the screen.
I expect better from directors tbh.

Yuri.F,

The negative equity can be addressed quickly. This isn't really a major problem if you ask me.

But yes, further actions and approvals from lenders depend on oil price and production. I think Tullow have got their cashflow projections pinned down.

"there's material threat of not only impairments on interest payments but part of principal amount is exposed too."
What? lol.

Slift.

I see Hurricane comparable to Pharos Energy.
Pharos Energy has a Mcap of £50m with 50mmboe 2P reserves and 36.6m 2C resources.
Pharos also has less debt and lower breakeven due to operation in a more economical company.

@johnpwh,
There is another presentation. The Investor Meet Company presentation iin the afternoon.

Slift.