Member Info for Slift

https://africanminingmarket.com/petra-willing-to-sell-williamson-diamond-mine-stake-to-tanzania-government/7336/

Hi Dive,

"So whilst HUR looks dirt cheap and ripe for a takeover its not as straightforward as someone coming in with an offer at 10 or 12p."
Ofcourse not. I do suspect HUR to be a takeover target (until at least HUR confirm that they are seeking a CEO or promote Beverley to be the CEO). I am in no way trying to deramp this stock. I too have a small holding here, and would want the best for HUR.
20-50% premium is considered "normal" for takeovers. Anything above 50% would be because the company is exceptional. Whilst HUR is in no way Sirius Minerals, but I think that's a good example to use for my logic behind the premiums.

Apologies for quotations:
But I think long term holders need to understand that if a takeover offer does come, then it's not as "not as straightforward as someone coming in with an offer at" 30 or 40p.
- The "uncertainty over the nature of HUR's assets"
- "The increasing water cut in the 7z well has unnerved investors but may also have created further uncertainty in the minds of those 'interested parties'."
- The questions regarding stability of production and interferences
- The questions regarding aquifer vs perched
- The questions of the £230m convertible bond due in 2022
- The questions of the material downgrade to contingent resources
- All the above question the viability of the assets and as you say "If not then it will be a disaster"

Whilst I agree that the "potential" is massive, there is a lot of uncertainty. The current share price and market cap reflects this uncertainty. And until these uncertainties regarding the assets and the company as a whole are taken care off, the value will always be at a discount.

ALL IMO.

Dope,
"My surprise was that you don’t think there will be more write downs and that you think with oil at $60 this could make £1."

The write offs etc. are for Q2. There hasn't really been anything to write off tbh.
- The reserves/resources were independently audited at year end 2019 (and so reserve write offs were made then). These reviews are done at least every 2 years.
- Tullow hasn't really drilled any wells to write off in Q2
- The Jamaica license expired in July 2020. But Tullow has already written this off in 2019 (so absorbed).
- Assets are likely to be impaired due to oil price though (if you class this as a write down, but I think of it more as recoverable)

Regarding oil at $60 being A CONDITION for £1, here's my reasonings:
- At $60/barrel, FCF would be circa. $700m
- Hence, provides liquidity to pass all tests with RBL (net debt will be reduced, so less risk of RBL taking the company to admin)
- Material upgrade of all assets (and hence increasing their value)
- Credit re-rate: Improves chances of restructuring debt and would no longer be a going concern (which is what's stopping investors investing here in general, all else equal)
- Credit re-rate: likely to get institutional investors and pension funds investing longterm in Tullow as their credit rating would be less vulnerable to defaulting
- FTSE250 entry: As above, likely to see FTSE250 entry as oil price rises, which would also attract institutional investors and pension funds

But also, as i've said in my previous post, a successful exploration at Suriname well, the strategy going forward and production of 85k+ bopd are also conditions required for the said market cap.

ALL IMO.

The hedge is insurance.

At the current market conditions, $35 hedge is probably the best you're going to get.
Remember, Hedging works both ways --> consumers of crude would want to protect themselves against oil price rising. Whilst producers of crude would want to protect themselves against oil price dropping.

$35 is likely the best offer they could right now when oil prices are depressed. As according to their RNS, their hedges was purchased with put options. Meaning that $35 is the floor, and the company benefits from any upside in oil price from there.

MCB55,

Yes, that's exactly what I had said in my later post.

People are expecting very high takeover offers when share price is at 6p.
The share price is at 6p because market believes that is what the company is valued at. And any takeover offers AT THE CURRENT SHARE PRICE, will be between 20-50% at max of a premium.

I think there are a lot of long term shareholders here trapped at much higher prices. Whilst I don't mean to offend them, this is the reality. Obviously share price may re-rate again to 10 or 15p as some suggest, and yet again any takeover offers at that point will still be a 20-50% premium to that share price.
Whether BOD or shareholder majority accepts or rejects the offer is is up to the BOD and major shareholders, and right now following what's occured, you can't be certain about what they're after.

"anything less would be rejected by the BoD and major holders"
This is a strong statement implying they WILL reject, when they may not.

ALL IMO.

Hi dope,

"I'm slightly surprised by the optimism, but there's no doubt that increased oil prices would do a lot of good here"
I don't see $100/barrel anytime soon. EIA/World Bank and other competent agencies who have the data have estimated oil price to be depressed until at least 2022.
EIA estimated $41/barrel for H2 2020, and $50/barrel for 2021. But any increase in oil price is positive for oil companies.

"Assuming the sale of Uganda goes through next week, to what extent do you think this reduces the likelihood of Tullow going bust? I would put the possibility of such an outcome reasonably high at present (maybe over 50%). How much do you think the sale of Uganda will change this?"
Tullow requires this sale at the moment for the liquidity test (September 2020). The liquidity test is with the RBL where Tullow needs to show that Tullow has/can make enough cash for all financial commitments in 2021.
The problem is Tullow is required to pay a $300m bond in July 2021, which increases the liquidity requirement for 2021.
Which is achievable without Uganda sale, but Tullow also has a $650m senior note due in 2021.

So even after the Uganda deal, there is still uncertainty regarding liquidity (I expect 2021 to be limited again with Capex) and whether Tullow can raise enough cash through operations for the senior note in 2022.

Until debt is restructured, or oil price is high enough where Tullow can generate cash for their financial commitments, there is still a high risk.

Tullow's credit rating will likely be upgraded following Uganda sale (which increases chance of survival as more likely to get debt restructured).

All IMO.

Hi Mrmacduff,

IMO, the whole reason for current SP is the going concern regarding liquidity, debt repayments and credit ratings.

I find it very difficult to value Tullow based on $100/barrel POO.

POO price influences:
- Cash generation from operation activities
- Asset values based on reserves/resources
- Capital Expenditure
- Shareholder returns

Assuming POO retains $100/barrel price point for a whole year, and assuming current activities:
- Free cashflow around $1425m to $1750m
- All assets would be upgraded in line with reserves/resources available
- Dividends reinstated and/or buyback for the following year
- Increase in exploration and production expenditure to further expand portfolio and production for the following year

With a FCF of $1400-1800m, the $650m senior note due in 2022 would no longer be an issue and RBL debt can be reduced.
And liquidity will no longer be a concern. Credit rating agencies will upgrade credit rating on Tullow's borrowing facilities.

I'd say around £7-8b market cap, or around 500-550p, but can be up to £10b market cap depending on explorations.

Also, at this point, selling Uganda would really be a very bad move (You hearing Canary?).

ALL IMO.

CaptainSwag,
Yup! Completely agree that the sale sign went up then. It seems as though the company is working towards profitability rather than trying to further prove fractured basement concept. I'm kind of with the company here, no point proving it further when it's already viable. Though I would like to see a full field development to see how that plans out in comparison to the EPS.

Donscot,
Here's a possible scenario:
50% premium is offered --> Share rises to 10.5p on news --> BOD approaches major shareholders --> Major Shareholdes against offer --> BOD rejects offer --> SP rises further or declines --> repeat

But I don't expect more than 50% premium on "current" price.

All IMO.

Hi MCB55,

I agree that the downgrade will be much less than 20%. The 20% was just the worst case scenario.

35p takeover is very very optimistic.
Any takeover offers is likely to be a 50% premium to current share price. Assuming 7p, that'll be 10.5p, or £186m.

The buyer will indeed have to invest millions more developing the assets, but Hurricane is also currently producing at a profitable rate from Lancaster EPS.

Unrestricted cash balance as at 1st April 2020 - $152m
Let's assume that on a worst case basis, for whatever unknown reasons 30% of it spent to end of June - $106m

I estimated that to end of Q2, Hurricane will have approx positive cashflow of circa. $40m (taking into account contingencies and best guess estimates).

Convertible bond due July 2022 - $230m

So a takeover offer of $186m as at end of June (to include the net debt of circa. $84m) would be in theory a $270m offer including the bond.

Going forwards, If we do have a second wave, and oil prices take a hit (and or production as we have seen in Q2) - cashflow to end of year would be around $80m for the year.
At the current cash generation from operational activities, the payback period for the buyer would be circa. 3-4 years if no investment made to develop fields. Ofcourse, if other fields are developed, likely more cash could be generated. I don't believe that money required to develop assets outweighs takeover cost @ $186m.

Hurricane is definitely a takeover target atm.
- Less than $300m required to offer for a takeover with a 4 year payback.
- No CEO present at HUR (which further improves takeover by a larger company)
- The Lancaster license for production was extended to 2022 (3 years) which makes up close to the 4 year payback

Totally agree that they should go to another independent company to re-evaluate the assets (If they're going to do the re-work).

Ofcourse talk and feasibility studies are cheap, but they've already drilled, so the rework in the models seem odd unless there's something significant missing here from the models.

Thanks all for your responses.

Yes, Strathmore and Whirlwind have been written off and costs absorbed in 2019. That leaves total current 2C resources at 2326 MMstb. Of which, if you were going to neglect associated gas resources then 2208 MMstb oil resources.

Since they are talking about the "overall" portfolio, i'd imagine each license to be downgraded as a result? Including Lancaster.
Whilst Trice was optimistic about Lancaster, he has also been booted out of the company.. The current board clearly don't align with his thinking IMO.
From the statement, the current technical committee came to the conclusion of this material downgrade based on the Lancaster geological and reservoir models. And will likely affect all other current models (Halifax and Lincoln), hence the downgrade.

A 20% downgrade as a worse case in Halifax, Lincoln and Lancaster leaves a total contingent resource estimates at 1861 MMstb. Which will definitely be a hit, but is it something that we should be concerned about? I'm not too sure as it's likely that the downgrade is much much less.
How can you be a competent person (CPR report) if you make a much more error than 20% in estimating the resources?

Following the most recent RNS, Hurricane states that following the technical review, there "may" be a material downgrade in contingent resources.

From the 2017 CPR reports, ignoring associated gas resources with the oil (using oil case for whirlwind):
Lancaster - STOIIP of 2160 with a recovery rate of 22.5% --> 486 MMstb 2C
Lincoln - STOIIP of 2514 with a recovery rate of 22.5% --> 565 MMstb 2C
Halifax - STOIIP of 5143 with a recovery rate of 22.5% --> 1157 MMstb 2C
Whirlwind - STOIIP of 409 with a recovery rate of 30% --> 123 MMstb 2C
Strathmore - STOIIP of 182 with a recovery rate of 18% --> 33 MMstb 2C

In total, the 2C oil resources are 2364 MMstb (not including associated gas resources). Including associated gas resources, the contingent 2C resources are 2563 MMstb.

So my first question is. How much of a downgrade is this likely to be?
Personally, I think the WORST case would be:
Lancaster - 18% recovery rate
Lincoln - 18% recovery rate
Halifax - 18% recovery rate
Whirlwind - 24% recovery rate
Strathmore - 15% recovery rate

Or a downgrade of 20% overall at a WORST case scenario, providing 1890 MMstb 2C oil reserves, or 2050 MMstb 2C including the associated gas reserves.

My second question: Clearly the technical committee aren't happy with the current reservoir models to call for this review. The team at HUR spent years developing these models for each asset. What new evidence do they really have to justify all this rework?

And finally, as the downgrades are for 2C contingent resources, are the board confident with the Lancaster 2P reserves, or is this likely to also be downgraded with the resources?

Opinions?

No worries Longish!

I honestly can't think of anything (other than impairments and maybe cash at bank and/or net debt) that is likely to have a negative impact at the Q2 Trading Update/Half Year Results.
- No asset writeoffs expected: No license expiry, no downgrades in reserves
But will see what Tullow can surprise us with... if anything.

I strongly believe this company will come through with production back on track and debt restructuring in 2021. Or at least at this point.

If Tullow can really achieve over 78k bopd this quarter and over 80k bopd in Q4, then I'd imagine Tullow to get two consecutive credit re-rates (Likely to be one in August 2020, and another in either December 2021 or March 2021).
Though the second credit rating would be dependent on the following:
- Goliath Voltsberg North (Suriname Well)
- higher production guidance (probs 85k+) for 2021
- POO price
- Positive directions from CEO

i'd value this company at a market cap of around £1.5b (or just above £1) at a POO price of $60, if both credit ratings are upgraded.

ALL IMO.

Things to look out for in the Trading Update - Explorations

Tullow have stated that before they drill any more wells, they will reduce their stake to circa 30% for all licenses.

Ivory Coast:
500 km 2D seismic acquisition completed?
Will Tullow plan for a 3D seismic here for 2021?

Comoros:
Interpretation of 3D seismic acquisition completed?
Investment decision to drill a well in 2021 following the above?
Tullow owns 35% interest here, so no farm down, but possible 2021 drill if above results are promising.

Guyana:
Following high-grading of both Kanuku and Orinduik, information on where Tullow plans to drill the next well for 2021.
Tullow owns 60% interest in Orinduik, if next drill planned for Orinduik, Tullow will likely farm out 30% here.

Peru:
Expected dates for 2D and or 3D seismic acquisition of Z-64, Z-67 and Z-68? - Possibly Q2/Q3

Suriname:
Well in Block 47 to be drilled in Q4 2020.
Tullow owns 50% of Block 47. Tullow will likely farm out circa. 20% of the interests here before the drill. Although not sure if farm out can be completed in time before the drill, will have wait for update!

Argentina:
3D seismic survey in Blocks 114 and 119 completed?
Expected start date for 3D seismic survey for Block 122? (Late 2020 or 2021?)
Tullow owns 100% of Block 122 - Likely farm out before 3D seismic survey here.

Slift.

Things to look out for in the Trading Update - Operations

Ghana:
Barrels produced per day from Jubilee (est. 30-32k), TEN (est. 24.5k), non operated portfolio (est. 23k)
Ntomme-9 well flow rate guidance and whether it will be online in August
Any new undeveloped areas identified for 2021 investment to production?
CALM buoy commissioned?

Non operated portfolio Gabon:
Ruche wells planned for 2020 delayed due to covid19. Any updates?

Kenya:
Progress of sale of stake
Info on FID and other activities since force majeure?
Info/Progress on exploration compensation for the work done by Tullow on the Turkana fields (circa. $2b)

Decommisioning (UK, Mauritania):
UK final clearance activities all completed?
Progress of abdonment programme for wells in chinguetti fields in Mauritania

Slift.

At 90k rates from Jubilee, likely to see production just short of 80k bopd for Q2 (assuming TEN and non-operated portfolio have been achieving similar rates from Q1)

Repost:

Production Estimates for 2020
79,200 average at Jubilee, although Tullow stated that “recent rates above 90,000 bopd”. Tullow owns 35.48% of this.
Assuming that production rates of an average 85,000 bopd kept due to reliable gas offtake for Q2. Production for Q2 for from Jubilee COULD be around 30,200 bopd (Tullow’s stake).

51,700 bopd average at TEN. Tullow owns 47.18% of this. Ntomme-9 well should be completed this month. Wells can produce in excess for 10,000 bopd. To be conservative, let’s say Ntomme-9 only produced at a rate of 5,000 bopd. Assuming this, Production from TEN COULD be around 27,000 bopd (Tullow’s stake) for Q3.

Q2 production
Assuming current production at TEN of 24,400 is kept constant (conservative estimate as not including Ntomme-9 for June) and production at Jubilee increased due to reliable gas offtake to 30,200. Also assuming non-operated portfolio is kept constant at 23,300.
Q2 estimate production at 77,900 bopd.

Q3 production
Assuming Q3 takes full advantage of Ntomme-9 aswell as the above for Q2:
Q3 estimate production at 80,500 bopd

Q4 production
Assuming above for Q3.
Q4 estimate production at 80,500 bopd.

Production estimate (conservative) for the year on average: 78,700 bopd.
Production is more likely to be within the upper range of the guidance provided by Tullow (all assuming nothing negative hits the production sites to stop production). My estimate would be between 77-82k with no production loss. Ofcourse disaster could befall us and we could be at the lower end of the guidance or even below 70k.

But theoretically, Tullow is aiming to kickstart 2021 with a guidance much higher than current guidance.
Common sense, but hey, just thought I’d number crunch the scenarios.

GLA!

I know that technicals are kind of pointless in the current market where the sentiment can change in an instant.

But right now on technicals alone, Tullow is at a key support level which it needs to hold to see 30+ again. If it doesn't, like dope says, will see this back at 25p (if market and oil prices allow).

The current decline is affecting all sectors, the Fed balance sheet has decreased 3 weeks in a row, which is weighing on stocks. Not to mention the Covid19.

US stimulus talks set to begin w/c 20th July, which should give stocks some support. And ofcourse, the trading update in late July is all to look forward to.

ALL IMO.

https://www.bnamericas.com/en/news/investment-numbers-surface-for-perus-latest-offshore-deals

I'd imagine Tullow will do the 500km 2D seismic reprocessing and possibly the processing of 1000km 2D seismic before they farm these licenses out.
Z-67 to drill 1 exploratory well and 2D/3D seismic to cost up $133m
Z-68 to drill 1 exploratory well and 2D/3D seismic to cost up to $135m

18 months for the seismics so likely see these licenses farmed early 2021/mid 2021.

Not sure why Tullow even invested in acquiring these licenses after Marina-1 well came up dry in Z-38. Obviously it's good to have acreage, but explorations are costly. Hopefully other exploration companies see value here for a farm-in or Tullow will really have to raise cash if they do commit to these licenses.

I do see that potential with ACP. But not sure what the graphite market would be like post covid19.
ACP is definitely a better bet than UJO.