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Tullow Oil Memo 180520

Tullow Oil. Reserve Replenishment Uncertainty Beyond FY 22 Makes Temporal Seniority Key. Buy $ 21s At 81.53 (26.3% Yield). $ 22s, $ 25s & Equity Out Of The Money At Current Brent Forward Curve & Reserve Trajectory. Kenya Upside A Wildcard
PUBLISHED: 18 May 2020
PAGES: 136
SUBMARKET: Top Reports, Top Reports, Tullow Oil,


Why Read?

  • Understand Tullow Oil’s reserve and production trajectory and why this makes temporal seniority particularly important, favouring the $ 21s especially following the announced sale of Tullow’s Uganda assets 
  • Understand why Tullow is unlikely to restructure until at least FY 2022
  • Understand how sensitive FY 2022 liquidity is to the realised Brent crude price
  • Understand what shocks to the Brent forward curve and the reserve / production trajectory are needed to generate a high enough valuation for Tullow to cover also the $22s and $25s and generate material upside for the equity 
  • Understand how much Tullow’s stake in Blocks 10 BA, 10 BB and 13T in the South Lokichar Basin in Kenya could be worth

What’s New?

  • Detailed liquidity analysis and projections – RBL commitment amortisation and capacity re-determination, including potential for re-sizing; sensitivity to Brent prices; asset sale potential
  • Financial projections, valuation (DCF and peer multiples) and sensitivities 

Questions Answered

  • What would it take to break liquidity by maturity of the $ 21s and why is this unlikely?
  • What would it take to ensure sufficient liquidity for Tullow to trade through FY 2022 and beyond the maturity of the $22s?
  • Is there a case for owning the $22s regardless of FY 2022 liquidity sensitivity, whether as a call option on oil prices or as a call option on Tullow’s Kenya assets or as a call option on Tullow’s reserve replenishment beyond FY 2022 with the fallback of a potential (Everest assumption) exchange offer with part cash repayment and part debt extension (potentially with some provision for enhanced capital structure / group structure positioning for consenting holders, whilst respecting Tullow’s indebtedness and lien covenants)?
  • Are press reports suggesting valuations for Tullow’s stake in its Kenya assets of $625m to $1,000m credible?
  • How concerned are we about post plateau reserve and production declines at Tullow’s operated fields in Ghana (Jubilee and TEN) and what are the prospects for reserve replenishment?
  • How does the RBL Facility work – commitment amortisation, capacity re-determination and prospects for renewal of the facility at or before its maturity in Nov-24?
  • Could Tullow avoid a restructuring altogether and navigate its way through its final debt maturity in 2025?

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