Lemming99

 One of my key reasons to invest in a company is their ability to create free cash flow. At this time it's more important than ever. I do have some investments in companies that don't produce free cash flow (yet) such as Aminex, Eve Sleep and Independent Oil & Gas. I'm just doing some analysis on the companies I invest in and thought I would share the findings. Two of the companies that I'm particularly interested in are Tullow Oil and Gulf Keystone Petroleum . Those links take you to my blog posts where I'm happy to share my research (with further evidence based links to company data) Each company produces their data in a different way, using different ratios. One of my objectives for this blog post was to present companies side by side with a single % figure for their Free Cash Flow (FCF) divided into their marcap and a single % figure for their dividend divided into their marcap. I've used last year's data for most of the following companies, but for...

 Based on the average OP in Jan of $54.77 and Feb of $62.28 and what looks like it might be as high as $67 for the average in Mar, I've taken a look at the forecast and potentially booked free cash flow for Tullow oil prior to financing. Tullow has reduced its risk significantly with a $48 bbl hedged floor for 60% of their revenues in '21. At an OP of $50 they expect to make $200m of pre-financing free cash flow. Based on a potential average OP of $61.35 for the whole of Q1, it looks like Tullow will book $77.59m of free cash towards their financing obligations. They already have liquidity headroom of $900m based on their reserves based lending agreed. Back when the OP was $40 Tullow engaged with bond holders for discussions. At an OP of $50 there is no need for such discussions. For an additional $10 / bbl to $60 there is an extra $100m of FCF pre-financing expected in '21. This works out to $1 bbl = $10m FCF for the workings below. If the OP were to average $65 in Q2-Q4 t...

 Is probably what Pictet are thinking. They started well, on February 25th 2020 declaring a huge borrowing of £4.4m of shares in Tullow in the very early days of the pandemonium. The price had already started to come down but I've assumed they did this for 51.94p. What's the problem you're thinking; it's only a little bit above that now. So their next step was masterful; they bought back 90% of these shares at 11p, just 3 weeks later for 19% of the total original position. Ker ching! They've got "your" cash, well it must be someone's. Should they have bought that last 10% back they would have had a whopping £3.481m cosy profit. That's a million per week (albeit for an unlimited downside bet - can we really call this an investment?) At a push I would accept that it can be called insurance, although it makes me feel a bit more like in the movies where you see violent psychos collecting protection money so that nothing bad happens by accident you know...

Despite the old adage buy on rumour, sell on news, Tullow Oil has had a resilient day today. There were a number of factors to influence the share price; such as the large paper loss made taking all that weight off the balance sheet. This was described during the call with CEO and CFO as a non cash impairment due to the oil price. If you're not sure whether that's a good idea, ask an accounting friend next time you have a chat; whilst I'm not an accountant, I think it will help flatter the company results for years to come. We also started the day with an overnight drop in Brent, and further weakness during the day. There were a few rays of sunlight. For example the figures look ok at an oil price of $55, but free cash goes up by £100m this year based on a $10 improvement in the average OP to $65 as per the full year results '20 . There's an intense level of focus on costs and operational performance. Every barrel and every dollar matters.  Let's find $1bn down ...

 Never thought it would come to this is no doubt what Odey is thinking about his cummulative borrowings of Tullow shares. Perhaps he hasn't worked it out as he's had some successes in other areas. Despite the 120 odd changes in their short position over 5 or 6 years I found that I could search and filter through short tracker.co.uk and Tullow's list of Total voting rights to get the numbers. Methodology: The changes in the short position are exact. The share prices from Google are to within a week or so as it wasn't listing them all (hence you'll see a few records in a row with the same share price). This is the same for the total voting rights, I've broadly got the total number of shares right. I would say overall it's at least 95% accurate. It took an hour as it was (where do I find the time?) but would have taken much longer to get that last 5% accuracy. It's worth pointing out that some large financial institutions short companies in certain sectors ...

 It seems that the changing tides of the oil market have caught our borrowers in their burrows. Looking at the reported borrowings of Varde Partners these Swedish vikings look like they have been caught and are surrounded. (apparently Varde means value in Swedish). Anyway, Värdeförlust Partners Europe Ltd seem to have had a fun time early in 2020. The story begins as they borrowed 2.5% of Tullow's shares and reported this on 11 March 2020. In the couple of weeks before, the share price was between 34p and 11p. I'm going to be generous and assume that they averaged their position in (or out) at 25p. As such they were credited with a whopping £8.8m of  your money. They then wisely bought back nearly half of this position (1.22%) for just £1.5m. Rolig ! Now the difficulties start. They continued to extend their borrowings all the way up to 2.85% of the company. This was done in the 20-30p range and even finally at 34p back in June '20. They're now in for a cool £12.4m of ...

 I was curious to see the point at which Whitebox started borrowing shares in Tullow, and before I knew it I was plotting the data into a spreadsheet. As I started I wasn't sure what I'd find, but these guys and girls must have deep pockets (or their customers do) as they're in for some serious fines at the library returning their overdue books.. er shares. It's getting to be an expensive game borrowing Tullow shares. Looks like buying back those 0.24% announced today just cost Whitebox £1.7m. As far as I can tell from looking through 17 pages of history, they first reported their Tullow short on 12 March 2020 with 0.51%. The price at this point was 12.46p However, we have to track a little further back as they built up their position before reporting. Let's be generous to them and assume that they took out nearly the whole loan on 31st Jan 2020 as news of the potential for Covid was building. The share price this day was 50.82p As such our starting point is that t...

 It's been an interesting week for the oil markets as OPEC+ met up and decided not to increase production for a while. Brent closed at $70.2 on Friday night in the US, and the US goverment had a mamoth 24 hour session to approve a $1.9Tn support package for the economy.  Back to Tullow Oil and further to my blog post on the 5th  I realised that I hadn't accounted, in my valuation model, for the $125m of restructure savings that Tullow referenced in the January trading update   Another update with kudos to MatchKing on the LSE discussion board is more detail on the hedging position for 2021 for Tullow. As you may recall from the January RNS, Tullow increased revenue by an additional $0.2bn with hedging insurance last year. The update is detailed in this circular on page 15 which in summary is that 60% of Tullow revenue is hedged with a floor of $48 and cap averaging $67. As such, I've added another row into the spreadsheet that shows that my previous estimate of an av...

 It's been an interesting week for investors in Tullow Oil. If you're new to the company you might like to check out this introduction with links to various information. Also by way of introduction is to be open about those intrepid investors who have borrowed shares in Tullow hoping that they will go down or that they can sink the company and be the reaper of great rewards. I've put together some information about the borrowers and there's a site that summarises their short of a few quid positions. This information is normally updated each working day by about 6.30pm and provides tremendous entertainment to long term holders who actually own the shares. Joking aside, with a low oil price last year, high net debt of $2.4bn and a general pandemonium Tullow was distressed. In my humble opinion any logic for that distress is now looking so 2020, and as things start to return to normal we should see the logical relationship between the average Brent oil price and average T...

Well that's a bit contrived but we are in a race; it's the shorts against the longs. The shorts want the Tullow price to go to 1p or less and the longs 100p or more. Where are we at the moment? Somewhere in the middle at 45p. There are actually at least 5 hares in this particular race; Odey, Pictet, Varde, Whitebox and Key Group. Key Group are flagging a bit and have dropped to 0.49% or less which means that they don't have to report anymore. Odey and Pictet seem convinced of victory and have raised their stake in the last week of February. Varde has decided they're too far ahead and have repaid 0.32% of the company value on 19 Feb. I expect they're very pleased with themselves as that cost just £1.54m on 19 Feb and would cost £2.06m in todays money 11 days later. So why do investment managers short stock? Broadly speaking it's for two reasons, the first is that they've gone through a discounted cash flow based valuation and looked at any other factors such ...

 Further to my blog post looking into some of Tullow's high level financials as an introduction, I thought I'd take a quick look at Tullow vs the Brent spot price.  Rolling the clock back a year or three Tullow tended to track Brent as many other oil companies do. I know it's a bit simplistic to say, but if the oil price (OP) went up 10%, a company whose main product is the production of oil would naturally go up 10% too; even if the rise in the OP was to then reverse a few months later (you'd expect the share price of the oil company to reverse at the same rate). Exploring for and producing oil is an expensive business; this is often financed by debt and when the OP is high the number of projects started increases. Again - that's obvious. Some oil fields in the OPEC+ group, such as those in Saudi get slowed down by 1m barrels of oil per day (BOPD) so that as a country they produce 11m BOPD instead of 12m for example. This reduction in supply helps to balance the s...