Member Info for Tonyb33

The current share price does not matter. The company is a volatile oil play and is being tossed around in the short term

The questions we need to be asking are as follows:

1. Is the Strait of Hormuz still closed

Every day the strait is closed is draining 10-15m barrels of oil from the market, all the excess in the system is systematically being drained, all of teh excess Russian and Iranian oil stuck on tankers has gone, the largest draw of emergency oil supplies is in process, a lt of countries who failed to build up oil reserves are in crisis. You will not see $65 ol for at least 3 years if ever again.

2. Is Brent above $100 a barrel

Above $100 a barrel Tullow is making cashflow of $5m a week in excess of its business plan weekly. This is on a company capitalised at less than £200m. This flow of money has already resulted in its debt rising from 70% of par to 93% of par. A few more weeks and it will start liquidating its $400m of loan notes yielding 17%. The company is being transformed.

3. What will the 6 months results look like in the first week of August 2026

We have 17 weeks until the first week of August 2026 when the H1 2026 accounts will be presented. It will be a H1 with the highest oil price in the history of oil. This will be in a six month period containing a $200m interest reversal for the early termination and IFRS16 interest reversal on the leased processing platform. Will the SP still be less than the 6 month profit?

Why I think Tullow is a strong buy!

Looking at the accounts there are three groups of things

Financial Accounts

Cashflow

Taxes

In the last few years Tullow has hit an oil price that has steadily dropped whilst approaching the latter stages of its funding agreements and oil field leases.

Financial Accounts

The impact has been as follows:

Depreciation

The old oil leases ran to 2036 so the cashflows used in the oil field valuations ran to 2036, combined with falling oil prices (2023 $75 2024 $61) meant that the PVs dropped and the depreciation charges (difference between valuation) rose. In the coming 2026 valuation the prices used will be a longer lease to 2040 plus an oil price in the $85 range. This will greatly reduce depreciation charges

Interest

This has suffered from a very large IFRS16 lease for the FPSO platform booked at penal interest rates. This has mean for the last few year high notional interest charges over and above the physical cost of the lease which has built up a large credit on the balance sheet. This asset is subject to a sale and purchase agreement in FY 2026 which will release this credit to interest charges and greatly reduce them. Plus the fact the current cashflow booked at $45 + above plan will not only ensure all interest on debt will be paid this year but should make substantial in roads into reducing debt.

Hedging

Due to financial standing of Tullow it had to cover downside risk from a depressed oil price in a market with oil surplus. That meant hedging booked in London became and expense which as booked in London was not a tax deductible against Ghana income. The rise in spot has meant covering downside risk will be a lot cheaper and due to elevated spot likely to generate a profit on the hedging book that will be tax free due to prior year London losses

Tax

The impact on the three items above have generated accounting losses but not tax losses. So tax charges based on physical costs not accounting income and expense has meant that actual taxes paid are presented as an extreme percentage of accounting profit. The rise in the oil prices will have the opposite effect on the accounting charges but in the same manner the resultant profit will not be taxable so taxes will fall as a percentage of profits.

Due to the effects as above management have described future performance in terms of cashflow but as the effects I have demonstrated above kick in the will embrace accounting profit & loss forecasts which will exceed all expectations

Well a rights issue would be very dilutive to the shareholders the senior leadership team have a lot of shares. They have no need to do so. Unlike KOS Tullow own the il right The current structure is generating a lot of cash. The current negotiations are delaying bombing (critical infrastructure) for 5 days. This will go on a lot longer than people think. After which Lloyds rules sorting out the tankers shuttered production closed refineries and risk will keep oil elevated in the $80s for at least 2 years. That extra money will reduce gearing as the new wells increase revenue

Israel have just stated that there are weeks of fighting ahead. Lloyds Insurance rules states a tanker cannot move until at least 10 days after formal ceasefire. Australia has had a policy of instead of building strategic reserves it simply bought spot it now has less than 20 days fuel left. It takes 28 days to steam from the gulf to Australia but that would be a pointless exercise as its oil is refined in Singapore. After thsi is over all countries will have to refill strategic reserves and many more will create them taking any spare production of the market and elevating prices for years.

Meanwhile the refineries have slashed production hence the jump in refined fuel prices. The refineries are configured to the high sulphur fuel from the gulf hence Murban is currently $157.90 a barrel. If the refineries stop it will take weeks to get them going again. They are not designed to stop.

This is all on the basis that Trump will not do what he has promised ie attack the Iranian power stations tonight and Iran does not do what they promised to do if he does that's closed the gulf and permanently damage Gulf oil infrastructure. A sigle attack last week closed a plant that produces 20% of teh worlds gas supply and 17% of its output is now closed for 3 years ie 4% of global output

Xxjnr last week you posted some interesting info

1. Load data including load prices

2. Data that the drill platform was still on the drill site of jubilee well 2

Could you please provide a URL to where I can source this data??

Xxjnr I am adjusting my model accordingly thank you

Hi I think this is going to be a very smart move for the following reasons

1. By the end of April it will be much more clearer how long this embargo is going to go on for if its still in place by end of April oil will be at $200 a barrel and management can provide an update as to impact on cashflow to 31/12/26

2. The funding is now in place I have been the FD of a number of companies. Now Tullow is out of the proverbial look out for kitchen sink accounting this is putting all of the bad new and conservative provisions in the old accounting year so that the new one will produce stella results. This way they can give very good news for H1 provisional figures to sweeten the 2025 numbers.

3. I will be very interested in the change in the iFRS16 numbers. The refinancing has substantially increased interest charges what I expect is the new WACC to be added to the calculation that should produce a high interest charge in YE2025 but then a large P&L credit on signing the sale and leaseback in YE 2026. I am currently making a model to test for the impact

XXnjr Many thanks for improving my knowledge

Re point 4 Tullow have a rolling development plan for the Jubilee field being 4 new wells annually. So if they included the planned 2026 wells in the 2025 audit presumably they will included the planned 2027 wells in the 2026 audit so we still get 4 additional wells

The more interesting thing is the impact on oil futures

Although spot is up only 1.35% the futures are over $100 up to July 26 and May to Dec 26 futures are up around 4% Dec 26 89.15 and even Dec 30 is up to 74. Feed these numbers into the reserves valuation and the annual depreciation charge will tend to zero

Please see my note on this appraisal

Its based on the old oil field audit which has the following issues

1. It was done before the oil field lease extensions and so the cashflows were based on the old lease lengths. If you simply put the oil extraction on the old fields at the new lease lengths the valuation rises pro rata

2. The TEN field production is 20% gas but Tullow are still negotiating the gas sales agreement for TEN. This is fortunate because in the interim period Iran has blown up Oman's gas field that produces 20% of the worlds gas and 17% will be offline for 3 years. So the contract negotiations will be in an era of much higher market prices. So the oilfield valuation for TEN excluded its gas revenues by the time the new valuation is audited this will be in place. Because the gas revenues were missing from the old audit the oil field actually had a negative value in the prior audit.

3. The auditors were extremely cautious on this prior valuation and five year projection of oil prices used in this valuation was 2026 61.29 2027 61.68 2028 63.21 2029 64.94 2030 66.24. The current year end Brent futures are as follows 2026 81.50 2027 80.4 2028 77.29 2029 75.3 2030 72.67

4. In addition in the interim period five new oil wells will have been drilled changing the reserves from 2C (valued at nil) to 2P added to the PV calcualtion

So the 13p is not a valid valuation I would go with the other valuation year end EPS 4p so valued at around 34p

Mea Culpa I now see the UT stock marker

@JMAX I now see why you have such a reputation

What can I say I occasionally miss things however I have worked as a Derivatives Product Accountant in charge of daily reconciliations for a major international bank. However I am old now so may be I am starting to miss a few things. I am glad you are there to point these things out as it will make me a better person.

Whats being missed here is if these swaps are locked in Tullow can do three things

1. Revalue their reserves using contractual sales prices above $100 a barrel rather than estimates that the auditors will debate and demand (from a potentially insolvent client) that are highly conservative. If you have the swap contracts the auditors will be as happy as Larry.

2. The reserves revaluation and IFRS 16 credit release will repair the balance sheet and remove the negative equity

3. With guaranteed cashflow they can refinance at much lower interest rates on the security of long leases and guaranteed oil prices

Its interesting last two deals of the day were a purchase of 2 million shares

The floor is free. You effectively swap $100 a barrel for open market rate.

Currently the floors are priced accordingly

Dc 26 78.42%

Dc 27 71.65%

Dec 28 69.36%

Dec 29 68.05%

Dec 30 67.20%

So Say Dec 30 contract Spot hit $149 the future is priced $100.13

Say you budget 35,000 barrels for Dec 30 You receive $100.13 you pay Spot.

If Spot is say $80 on Dec 30 you receive (100.13-80) x 35,000

If Spot is say $120 on Dec 30 you sell your oil in the market for $120 and ten settle your swap for (120-100.13) x 35,000

If this crisis goes on for another month the spot will rise so high the futures prices will rise in tandem so you can lock in $100 oil.

But you can lock in as prices rise to know you get $100 in each year or you can wait until spot hits $149 at that price you will lock

Dec 26 $116.85

Dec 27 $106.76

Dec 28 $103.34

Dec 29 $101.40

Dec 30 $100.13

Its very odd mid week you can see huge purchase orders gong through and at the last minute someone sells £10 worth and the price drops. But today very large share sales are going through this afternoon but the price keeps going up. Its like the market makers are building up a book to sell on Monday morning. Its like what is Iran going to do this weekend ??

Very Good You missed a bit

1. How the IFRS16 early termination interest credit could reduce their interest bill to zero

2. The Reserves valuation would be recalculated on the locked in $100 plus oil prices plus the 5 extra 2P oil wells this could massively reduce the company's depreciation charge

3. In the previous period the combination of the inability to deduct London hedge losses against Ghana Oil profits, plus the tax calculated on actual lease payments but profit calculated on accelerated IFRS16 presentation interest costs, plus the accounting profit based on Depreciation but tax profit based on drilling costs meant that the tax charge was a massive percentage of the accounting profit. In an environment of rising reserves early FPSO disposal and early IFRS16 lease terminating releasing accelerated interest into the current years, plus hedge profits could actually meant tax refunds on massive profits.

4. With income locked for 5 years at $100 plus and their bonds now a par values, plus the IFRS 16 credit repairing the balance sheet it would be possible to refinance at 7% lower interest rates

If this lasts 6 months and it might Tullow at its currently valuation will be worth a fraction of a Suzemax tanker load. Australia has 20 days of oil left. If war ended today the Lloyds rules means it cannot leave port for 10 days that's if there is no mines. Its 28 days steaming to Australia from the gulf. So where do you get oil will be the question China has now banned exports, Mid East closed Russia embargoed, South America will go to USA, the difference between WTI and Brent indicates Trump will eventually ban exports if oil hits $150. There is only Africa left you can buy Tullow fill your tanker at a discount to market prices (where there is no market) and give away as a tip to the doorman when leaving. People do not realise Tullow controls the oilfields of one of the few places on earth that has oil that is not bombed sanctioned or closed. Very soon someone is going to work it out i know I did.

Chat GPT missed a bit

1. As the spot rises it drags the futures with it.

2. At a spot of $128 you can lock in all of 2026 at over $100 a barrel at $149 you can lock in all months to Dec 30 at over $100 a barrel

3. Once locked in as spot drops the production profits and taxes plummet. But you hedge profits soar.

4. As you have had a lot of hedge losses in prior years this income is tax free

5. If you can get spot to $149 and lock in your hedges you make more money at $50 oil than $150 oil. Because with the hedges in place you have the same income but no tax on it you might even get a tax refund in Ghana

a quick message in 1912 titanic hit an iceberg. initially the first class passengers were using the ice for ****tails. then they started launching the lifeboats. for the initial boats there were a lot of empty spaces. the thinking at the time was that with wireless communications on a busy route the boats would only be used to ferry passengers between ships and rescue would come. so it seemed dangerous to get into a rowing boat in winter in the middle of the atlantic. so the the first class let the boats go empty and had another drink waiting for a rescue ship.

as time went on there came a realisation the ship was sinking and there are no more life boats. the demand for these lifeboats changed rapidly.

within 4 weeks a 1 million barrel load for a suezmax tanker will cost $200m. the problem will be middle east closed usa ban on exports russia embargoed, china no export south america sells to d trump only. that leaves nigeria and ghana. how long before it occurs to someone that the company controlling the ghana reserves until 2040 can be purchased for less than filling a single tanker. we are currently in the ****tail time but the life boat time is coming really soon.

Your children will thank you