Moody's downgrd Tullow Oil's CFR to Caa1-outlook negative14 Jan 2021 17:58
Just a little reminder of Moody's rationale for Tullow Credit rating downgrade back in Nov 2020. All looking a little silly now as they based it all on a stupidly low forecasted oil price.
RATINGS RATIONALE
Today's rating action reflects Moody's expectation that a more prolonged downturn and slower recovery of the oil prices in the next 12-18 months, compared to previous expectations, will significantly affect Tullow Oil, given the high FCF break-even point of Tullow Oil at approximately $40/bbl. With no or limited sustained recovery in the pricing environment in the next 12-18 months, Moody's does not believe that Tullow Oil's capital structure will be sustainable in the medium term and it remains doubtful that the company will have the resources to repay the $650 million senior unsecured notes maturing in 2022, in the absence of additional disposals (which may weaken the profitability and/or the growth prospects of the company further) or capital injections from shareholders.
While Moody's positively recognizes the measures taken by Tullow Oil in order to sustain its cash flow generation and the successful execution of the disposal of the stake in the Lake Albert Project in Uganda to Total SE, those will not be sufficient to offset the very weak operating environment for oil producers, heightened by the moderately declining production (Moody's expects a production around 65-70kbopd for 2021 and 2022) and the limited hedging book in 2022 with only 3% or production hedged so far at $50/bbl specific to Tullow Oil. These would significantly affect the company cash flow generation going forward as Moody's expects a broadly neutral cash flow generation in 2020 and 2021, on the basis of an average price of $35/bbl in 2020 and $45/bbl in 2021, and an only marginally positive free cash flow in 2022.
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