What factors led Tullow Oil to forecast a 16% drop in the oil production?

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What factors led Tullow Oil to forecast a 16% drop in the oil production?

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 What factors led Tullow Oil to forecast a 16% drop in the oil production?

Summary

  • Tullow Oil Plc had expected a full year FY20 revenue of USD 1.4 billion.
  • The average realized oil price was estimated as USD 50.8/bbl during FY20.
  • The Company had sold its Uganda assets to Total for USD 575 million on 10 November 2020.
  • The Group had working interest oil production of 74,900 bopd for FY20.

Tullow Oil Plc (LON: TLW) is the FTSE All-Share listed energy stock. The Company is one of the most prominent Oil & Gas exploration players, managing development and production activities. TLW’s shares have generated a return of about negative 48.23% in the last 12 months.

Business Model

TLW is focused on the exploration and production of Oil & Gas. The Company is present across 15 countries. The Company has its primary operations across Africa and South America. The Company had several production facilities across various locations –

  • Ghana
  • Jubilee
  • TEN
  • Equatorial Guinea
  • Gabon
  • Côte d'Ivoire

(Source: Company update)

 

The Group had reported the working interest oil production of 74,900 bopd (barrels of oil per day) for FY20. 

FY20 Trading Update (for 12 months ending 31 December 2020, as on 27 January 2021)

  • The Company had anticipated the full-year FY20 revenue to be around USD 1.4 billion and FY20 gross profit to be around USD 0.4 billion.
  • The realised oil price was estimated as USD 50.8/bbl during FY20.
  • The Company had incurred significant capital and decommissioning expenditure of USD 290 million and USD 50 million respectively during FY20.
  • The Company had reduced its net debt from USD 2.8 billion as of 31 December 2019 to USD 2.4 billion as of 31 December 2020 driven by the free cash flow of USD 430 million.
  • The pre-tax impairments and exploration write-offs were estimated to be around USD 1.4 billion.

Recent News

On 07 December 2020, the Company had received exploration licenses extensions in Kenya till the end of 2021. This includes exploration licences for Blocks 10BB and 13T following the approval of the work programme and budget for next year by the Ministry of Mines and Petroleum.

On 10 November 2020, TLW had completed the deal worth USD 575 million regarding the sale of its Uganda assets to Total. The Company had already received USD 500 million and would receive remaining USD 75 million after the final investment decision taken on the development project.

On 09 September 2020, Tullow Oil had appointed Mitch Ingram as an independent Non-executive Director from the same day.

H1 FY20 Financial Highlights (for six months period ended 30 June 2020, as on 09 September 2020)

(Source: Company result)

  • The Company’s revenue was plunged by 16.2% from USD 872 million during H1 FY19 to USD 731 million for H1 FY20 due to lower realised oil prices.
  • Similarly, the Gross profit was declined to USD 164 million during H1 FY20.
  • The Company had reported a loss after tax of negative USD 1,327 million during H1 FY20 due to the reduced levels of oil demand around the globe.
  • The working interest oil production was declined by 10% to 77,700 boepd, while realised oil prices after hedging had also dropped to USD 51.8/bbl during H1 FY20.
  • The Company had incurred significant capital investment of USD 192 million during H1 FY20.
  • The free cash flow of the Group was negative USD 213 million during the period.
  • The Company had increased its net debt from USD 2,948 million as of 30 June 2019 to USD 3,019 million as of 30 June 2020.
  • Regarding the Group’s indebtedness, the Gearing stood at 3.0x for H1 FY20.

Share Price Performance Analysis of Tullow Oil Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Tullow Oil Plc were trading at GBX 25.52 and were down by close to 7.00% against the previous closing price as on 28 January 2021, (before the market close at 10:10 AM GMT). TLW's 52-week Low and High were GBX 7.17 and GBX 54.78, respectively. Tullow Oil Plc had a market capitalization of around £389.35 million.

Business Outlook

TLW had given proper financial guidance as we advance in FY21. The Group had forecasted working interest oil production ranging from 60,000 bopd to 66,000 bopd during FY21 due to several factors affecting it such as planned closure of Jubilee in September 2020, postponement in development on Simba regarding drilling and inefficient drilling process during 2020. The Capital expenditure and decommissioning expenditure were forecasted to be around USD 265 million and USD 100 million during FY21. The Company had a new business plan with an objective to generate USD 7 billion of operating cash flow over the period of the next ten years. The underlying operating cash flow was forecasted to be around USD 0.5 billion during 2021.

The year-to-date oil production from Ghana was in line with the expectations well-supported by the Government of Ghana. The new oil offloading system in Jubilee would get ready by February 2021 and currently in the development stage. The Company had highlighted its development project in Kenya and would submit a revised plan to Government of Kenya in 2021. The Company would concentrate on unlocking value from the CI-520 block in Côte d'Ivoire by reducing its onshore exploration portfolio.

 

 

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