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 the back of the sofa in the next two years, otherwise known as the "self help programme" seems to be delivering; and whilst no further asset sales are required to make the numbers work (as long as oil stays strong) if someone puts a good offer on the table it won't be ignored. There's certainly not a fire sale.
Most oil wells and fields degrade over time, and need a variety of work-overs, pumps and injections to keep them ticking over. It seems that there hasn't been a consistent approach to this at Jubilee and TEN, but this is being put right. As it happens these also fit the bill of finding places to spend capex that are low risk and quick/ high return.
Tullow have taken 17% of the oil out of Jubilee and plan to get up to 45% out.
Tullow have taken 9% of the oil out of TEN and to date have planned to get 30% out. There's excitement from Rahul, CEO about the possibility of hatching plans with partners to extend this to 50%.
There is no need to raise money with new equity. There is confidence from the board that they have submitted a plan for group wide funding that passes the necessary tests. This will hopefully be concluded by June 2021. The reserve based lending (RBL) of $1.7bn reduced from $1.8bn has already been signed off.
Even at a low oil price there were comfortable discussions with creditors (I take it from that, that banks accept that the world still needs oil). As the oil price goes up, the 6.25% bond, 7% bond and equity for Tullow have rallied.
And (if I may use the possessive) our company, as announced last night, is now going to be in the FTSE 250 Index from Friday 12th March. Why does that matter? There are all sorts of funds that need to synthetically or physically track the constituent parts of the index, so there might be one or two shares purchased.
This helped Tullow to put on a good show in an otherwise fairly bleak market. We're the blue line, Brent is the purple one.
I own shares in Tullow. Don't suffer from FOMO; perhaps get some too! This is not investment advice. Please do your own research. I'm happy share mine.
Comments
Post a Comment