First half manufacturing averaged 77,700 barrels a day (2019: 86,300), according to expectations and with coronavirus having no influence to operations. This along with a realised oil value of $52 a barrel, means income is predicted to be $0.7bn for the half, coming in beneath final yr’s $0.9bn.
Tullow has revised its long run oil value worth down from $65 a barrel to $60. In consequence Tullow expects to report $1.4-1.7bn in impairment prices and exploration write-offs on the half yr.
Tullow shares are down 8.6% because the announcement.
Destiny appears to have it in for Tullow.
The group has usually accomplished a fairly good job of discovering and growing new property, and after a fairly bushy time again in 2015/16 felt safe sufficient to start out paying a dividend.
Enter a sequence of disappointing exploratory wells, the collapse of a farm-down deal in Uganda and eventually an almighty oil value crash. As an alternative of a gradual movement of dividends Tullow is again to reducing prices left, proper and centre to protect money and hold debt beneath management.
An important numbers in the mean time, in our opinion, are the money movement forecasts for subsequent yr. Money is the cash the financial institution the group truly has to pay salaries, service debt and put money into development. Tullow reckons it might probably break even on a money foundation with oil at $35 a barrel, and with oil now round $40 a barrel issues are trying up.
Nonetheless, that effectivity has come at a value, with some fairly brutal cuts to capital expenditure. Below investing for a sustained interval dangers damaging the companies long run prospects.
Happily Tullow has a couple of factors in its favour. Manufacturing is effectively hedged over the following yr or so – which ought to assist it safe an above market value for its oil. Regardless of a sizeable debt pile the group additionally expects to have $500m of economic headroom in its borrowing amenities. Each of these will assist it hold its head above water if the at present depressed oil costs stay short-lived.
The current sale of the group’s Ugandan property can be a optimistic. The challenge has been problematic for a while, and the proceeds of the sale will present a helpful increase to the stability sheet at a vital second. The sale means newly appointed CEO Rahul Dhir can be taking on an organization in higher form than the he might need anticipated.
Whereas the oil value is transferring in the proper course, it began from a really low base. Which implies life will proceed to be a problem for Tullow. The excessive fastened price base and vital debt pile has all the time made the group a little bit of a play on the oil value. If issues pan out in its favour the share value may get well properly however with the inventory buying and selling on simply 0.6 occasions e book worth, the market’s clearly pessimistic.
Tullow Oil key details
- Worth/Ebook ratio: 0.6
- Ten yr common Worth/Ebook ratio: 2.5
- Potential yield: Tullow have at present suspended its dividend
We have launched this part in response to current survey suggestions.
Please bear in mind yields are variable and never a dependable indicator of future earnings. Consider key figures should not be checked out on their very own – it is necessary to grasp the large image.
Buying and selling particulars
Administration stated Ghana had a robust working efficiency within the first half, producing on common 54,000 barrels a day. Full yr forecasts are for a median of 51,600 barrels a day.
Equatorial Guinea and Gabon produced 5,000 and 16,800 barrels a day respectively – full yr manufacturing is predicted to drop barely in each areas. Cote d’Ivoire’s produced 1,900 barrels a day however that is anticipated to rise to common 2,000 over the total yr.
On the finish of June, the group’s web debt is predicted to be $3bn. Free money and liquidity is predicted to be round $0.5bn. As issues stand the group expects free money movement to interrupt even over the total yr.
Because of good efficiency throughout the portfolio, full yr manufacturing steerage has been narrowed to 71,000 -78,000 barrels a day. On 28 July, 60% of 2020 gross sales income was hedged with a ground of $57 a barrel and 44% of 2021 gross sales income hedged with a ground of $51 a barrel.
The $575m sale of the Ugandan property is predicted to finish earlier than the tip of year-end. Regardless of having been authorized by shareholders, the transaction stays topic to the Authorities of Uganda and the Uganda Income Authority discovering a tax settlement.
Completion operations on the Ntomme-9 manufacturing effectively at TEN are ongoing and the effectively is due onstream in August. Nonetheless, coronavirus is disrupting progress on the Kenyan work programme and the group are in discussions with the federal government to agree subsequent steps. In Suriname, drilling of a prospect (Goliathberg-Voltzberg North) is deliberate for the primary quarter of 2021.
Except in any other case acknowledged estimates, together with potential yields, are a consensus of analyst forecasts supplied by Thomson Reuters. These estimates usually are not a dependable indicator of future efficiency. Yields are variable and never assured. Investments rise and fall in worth so traders may make a loss.
This text just isn’t recommendation or a advice to purchase, promote or maintain any funding. No view is given on the current or future worth or value of any funding, and traders ought to kind their very own view on any proposed funding. This text has not been ready in accordance with authorized necessities designed to advertise the independence of funding analysis and is taken into account a advertising communication. Non-independent analysis just isn’t topic to FCA guidelines prohibiting dealing forward of analysis, nonetheless HL has put controls in place (together with dealing restrictions, bodily and data limitations) to handle potential conflicts of curiosity offered by such dealing. Please see our full non-independent analysis disclosure for extra data.