Tullow Oil Memo 180520
- 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
- 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
- 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?