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Thanks J. Bond

Just one thing on the Glencore facilitate - they price it at Term Secured Overnight Financing Rate (SOFR) plus 10% on drawn amounts - the Secured Overnight Financing Rate (I:SOFR) is 5.31% for Mar 18 2024 - Hence the 15.31% cost of the facility.

J. Bond do you think Tullow will draw down the Glencore 15.31% loan facility? It is an additional £28m bottom line cost on the 25 bond.

SuperCooper I don't understand why you can't understand the basics of bond redemptions - it has been explained first by me, then by J. Bond and now Anton and yet you still don't understand it. The 2016 bond has seniority over the 2015 bond. No one disputes the redemption date of the 2016 is 2016 but the reality of the 2016 bond is that it will be refinanced in 2015. Only a lunatic, maybe like yourself, would risk the entire bankruputcy of Tullow by risking a full default by not dealing with both bonds in 2025. Of the outstanding 493m of the (7%) 2025 bond Glencore are offering to provide a further 270m (at 15.3%). As such 223m remains of the 2025 bond and 1485m will also fall due in 2016.

It is astonishing you think the BOD of Tullow will attempt to refinance the risdiual 2025 bond (given they'd be paying 15.3% to Glencore) without having to refinance the 2026 bond in 2025. It is hard to understand how you just can't see it and also repeat your nonsense again and again.

Just to get it into your thick skull - both bonds will be refinanced in 2015. Capeesh?

That then becomes very interesting.”

Tullow Oil was built on the promise of great things. Now investors are being asked to hold on for recovery.

Smith thinks the $170 million generated last year is a promising start. “Lower price hedges are rolling off, production in Ghana is growing and capex is falling,” he said. “You can quickly see how that translates into more cashflow over the coming years.”

Some analysts have questioned where the real growth in free cashflow comes from in the medium term. Over the next three years, they have forecast Tullow’s total net production being broadly flat on last year’s level.

The wildcat exploration that was Tullow’s bread and butter more than a decade ago is no more. The Jubilee field is responsible for about half of the company’s net production average of 62,700 barrels of oil equivalent a day last year. At a gross level, it turned out 83,400 barrels last year. With the drilling of new wells, the company thinks it can sustain 100,0000 until the end of the decade.

Tullow also is seeking a new partner to develop an oilfield in Kenya, after Total and Africa Oil withdrew from the $3.5 billion project. Some have called for the British player also to abandon the field, which it has said could deliver 120,000 barrels of oil a day. “They don’t have the headroom, they don’t have the time before they come under pressure to start returning cash to shareholders,” Kelty said.

In the near term, Tullow’s ability to finance organic and acquisitive growth is curtailed by its need to bring down debt. If it can achieve a target of reducing leverage to below a target of one by 2026, Dhir has said it will have the firepower for acquisitions and shareholder returns. “It’s not an either/or, it’s an and,” he said. However, the City does not expect any dividends until 2026, according to a Factset-compiled consensus.

Where once the company’s firepower was put to use exploring frontier markets, now Dhir sees it in buying producing assets unwanted by the industry majors. “You wouldn’t see us go out and get new exploration licences. I think part of the strategy and where we are as a company is we’ve got a tremendous capability in dealing with mid-to-late-life assets,” he said. A failed merger with the cash-rich Capricorn Energy, a London-listed peer, in 2022 had been “a purely opportunistic thing”, he said, and the company was not seeking similar deals.

The challenge for Tullow is finding a story that hooks investors. There is also the question of the extent to which investors get behind one-dimensional oil producers such as Tullow that lack the diversity of earnings boasted by the likes of BP and Shell, from production to refining to trading, as well as investing in renewables.

Tullow’s lowly valuation could become a bigger draw. Free cashflow guidance of $250 million this year represents more than half the company’s market value, although the shareholder said that could be seen as “an irrelevant statistic” because most of the cash is being used to reduce debt. “But the point there is if you believe that level

More exploration licences were secured in Africa, Asia and Europe and these were accompanied by acquisitions. By 2007, the company was operating in 25 countries. Between then and 2014, when oil prices peaked, capital expenditure grew at a compound average rate of 18 per cent a year, outpacing revenue growth.

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Heavy spending on drilling new wells was made tolerable by booming oil prices and the willingness of investors to stomach greater risk-taking. A string of successful discoveries, including the Jubilee field in Ghana, which has become the backbone of the company, were rewarded by the market.

However, “that whole mantra has changed quite a bit over the last few years”, Alex Smith, an analyst at Investec, said. “The focus is now on maintaining a balanced portfolio, balance sheet strength, free cashflow generation and ultimately shareholder returns. E&Ps [exploration and production companies] are now more developer-producers, rather than explorers.”

A turn in oil prices marked the start of Tullow’s losing streak, compounded by a string of unsuccessful exploration attempts and writedowns. A heavy cut to production guidance in 2019 led to the departure of McDade as chief executive and caused the shares to plummet by 70 per cent in only one day. Dhir inherited a company in disarray.

Then the historic fall in oil prices that accompanied the pandemic pushed the company to crisis point. Between oil prices peaking in 2014 and Covid hitting, the group generated an annual pre-tax profit only once. It was saved by a $1.8 billion rescue bond offering in 2021, which ended a strained refinancing process.

Tullow is aiming to turn the corner from its earlier exploration sttory to one of solid production

PR HANDOUT

The refinancing brought with it hedging conditions that meant Tullow has missed out on capitalising fully on rising oil prices over the past three years. About 40 per cent of its production will be capped at an average $77 until the end of June, with a floor of $57 a barrel for just over 60 per cent. Then those hedges will roll off, while about a quarter of production will be capped at $112 a barrel and 60 per cent of output will have an average floor of $60 a barrel.

Tullow is hoping that exposure to higher oil prices will help it to achieve a free cashflow target of $800 million between last year and next year, based upon oil remaining at $80 a barrel. Analysts, though, are split on whether that target is achievable.

“They should get a bit more free cash, but next year is all predicated on oil prices,” Ashley Kelty, at Panmure Gordon, the broker, said. “If oil prices stay high, potentially yes, but if they go back to investing in Ghana, I think it would be a reach to get to this $800 million.”

Tullow hopes to convince with its recovery story

Oil company’s market value now stands at about £400 million, down from a peak of more than £14 billion and on the brink of slipping out of the FTSE 250

Emma Powell

Thursday March 14 2024, 12.01am GMT, The Times

A decade ago, the last great commodities super-cycle was nearing its peak. Tullow Oil had used a near-15-year boom in oil prices to expand rapidly in new territories, gaining a reputation as a darling of the sector and a place among London’s largest companies in the FTSE 100.

Turn the clock forward, though, and the most recent leap in energy prices has been far less helpful. The exploration and production group has grappled with a legacy of its heavy spending that in turn has left it painfully exposed to falling oil prices and has stretched the balance sheet to the point of defaulting on its debt.

Tullow’s market value now stands at just north of £400 million, down painfully from a peak of more than £14 billion and on the brink of slipping out of the FTSE 250 when the latest reshuffle of the mid-cap share index takes effect on Friday. It’s little consolation that the dizzying fall in fortunes is as much an illustration of the change in risk appetite among London’s oil and gas investors as it is Tullow’s own challenges.

Rahul Dhir, 58, Tullow’s boss since 2020, was parachuted into the job in the months after Paul McDade, 60, had exited amid a dramatic cut to production forecasts and an axed dividend. Last week’s annual results offered the latest snapshot of Dhir’s progress in reviving cash generation and repairing the balance sheet. Debt now stands at $1.6 billion, or 1.4 times earnings before interest, taxes and exploration expenses. That’s down from $2.4 billion in 2020, or a leverage multiple of three, but remains almost four times the company’s market value. Once leverage is reduced, the hope is that there will be enough cash to resume dividends or to make acquisitions.

For investors, though, the jury is still out on whether Tullow is managing to balance the demands on its capital. Its bosses had not earned an “unqualified pass”, one leading shareholder said, adding that “I do think in 12 months’ time we’ll have a much better view of the extent to which the actions of the last couple of years have delivered the desired outcomes”.

There was a time when investors were willing to put a much higher value on the buccaneering approach of exploration and production companies such as Tullow. Able to make drilling decisions more quickly than the majors, the search for new oil presented the opportunity to sell discoveries to the sector’s heavyweights or to develop sites themselves.

Tullow was founded in 1986 by Aidan Heavey, an accountant by training who established the business after finding out about oil and gas licences in Senegal, which had been abandoned by the sector’s big hitters. More exploration licences were secured in Africa, Asia an

Thanks for the confirmation the 2025 was effectively junior to the 2026 and company cash flow could not be used to repay the 25 without 26 approval. It was obviously a surprise to a few on here given the abuse I got when I informed them.

On the Glencore $400m facility, do you relly think this will be drawn? Paying a coupon of 15.3% as of today's rate on this debt seems madness. I take it the Glencore facility is only in place as a stop gap to facilitate and allow for a new bond to be issued in 2025 or latest 2026. The financinng cost of the Glencore facility is an immediate £28m annual hit to the bottom line over the 2025 bond.

OK - so you're suggesting the 2025 bond, will have to be partly refinanced, will be refinanced with a $1.2 secured bond maturing the following year?

Wow. How much is that going to cost? I'd love to meet the bond sales team selling that one.

The 2025 bond is unsecured - the 2026 is secured. They can't repay the 2025 bond with security belonging to the 2026 bondholders - i.e. the 2025 bons is effectively subordinate to the 2026 bond.

Is it any wonder you have lost so mcuh money.

I'll make it simple for you:

Tullow needs to refinance both its 2025 and 2026 bonds.

The 2026 bond is senior to the 2025 bond so they cant just refinance the 2025 bond in isolation.

The combined value of these is around c$2bn. So Yes, Rahul does need to find $2bn by next year.

How this is a surprise to you is frighening.

They have cash on hand and with the expected cashflow in the meantime so they can repay c$700m of the $2bn

Whatever happens they are going to have to issue new debt of c. $1.3 bn to cover the balance of the existing maturities.

It is astonishing you don't know this.

O.S.J! - The 2025 bond is subordinate to the 2026 bond so the bonds are both being redeemed in 2025 (with partial redemption in 2024 whith the recent tender offer) - all of which obviously passed you by - it really is basic stuff. You clown.

H2 2024 + H2 2025 for both?

What at the exact same time the 7% Bond and the 10.25% have been repaid in full at par?

Wow - Supercooper is now betting not only against Tullow but now also the bondholders - who I guess just may know a little more about their risk esposure he does.

Honestly, rule 1, if you're going to post something don't humiliate yourself at the same time.

I know that, as you haven't a clue how to calculate it.

It doesn't matter when it will be resolved as anyone familiar with the situation knows there's zero foundation to Ghana's claim which is now over 12 years old - hence there's no provision as recommended by the auditors and lawyers. Just like their claim of $700m against the Nigerian MTM. With Ghana's trip to the IMF with their bowl out in 2022 asking for it to be filled and told to go elsewhere first Ghana is as ankious to conclude matters as Tullow will be with both sides happy with a zero award alowing Ghana to drawdown IMF funds. Honestly I would have thought you even knew the basics of this given you're basing your ridiculous pricing strategy on Tullow on something as ridiculous as this.

Well working on the bondholders has been very substantial - They having shifted their expectation of being repaid from a 50% payout 9 months ago to c. 97% repayment as of today with less than 12 months to maturity even the bondholders recognise there's huge surplus equity in Tullow. Strip out impairments, which can always be reversed, the net underlying profit for 2023 was £325m (an underlying pe of 1.18) with £175 m of fcf with a further 2024/25 fcf of £600m.

It's a small cap tightly held stock - there's always going to be volatitity with the crazy daytraders gambling away but the movement of Tullow is only going to go one way.

The tax issues is a chimera.

There's nothing wrong with shorting shares, it adds liquidity and anyone who shorts is committing to buying back the exact same shares sometime in the future, thereby creating a future demand for the shares. It is expensive and has enormous downside risk (hence the nonsense from the earlier commentor saying he shorted at 27.6p and will go long at 25.5p - with spreads, transactions fees and shorting costs you can't make a profit on this trade but your losses could be huge).

Proper shorters keep executives honest, not like the JMAC nonsense, they do the research that daytraders don't; who look at pie(in the sky) charts and tea leaves. Every great financial crisis was pre-warned by shorters - they didn't cause these crises they just told you they were coming.

That's based on nothing but pure guesswork - name a single fundamental reason why the sp will go to 25.5p before bouncing?

What do you by bouncing? To 29p or to 49p or 109p? In a week a month a year? After today's bounce you could claim you're already 50% right with sperious statements like I've shorted it at 27.60p. I think we could see 25.50p before it's time to go long.

Who is the world would short Tullow at 27.6p with the expectation it will bouce up at 25.5p? That's not even 1% credible trade.

The massive reduction in the 2025 & 2026 bond yields + the current cashflows + the Glencore facility tell me having a company's valuation equal to next years FCF and 1 X PE is pure madness; irrespective of Kenya & the Ghana tax dispute. HMRC can tell me I owe £310m, it doesn't mean I owe it. As you'll find out, neither do Tullow.

JMAX I can only say for certain that the fair value of Tullow is certainly not 26p per share. It's somewhere in the middle of the two valuations but at least +100p