The latest Investing Matters Podcast episode with multi-award-winning fund manager and international bestselling author Lee Freeman-Shor has just been released. Listen here.
Once people work out , that netting off cash already generated post the effective start date of the transaction and then selling forward new production for twelve months…… almost pays for the whole transaction in its entirety at current oil prices…they will be amazed how accretive and low risk this transaction is ! What a deal. The UK market is half asleep. Fund managers need to go back to school and kids need to learn about cash flow return in investment…..not ponzi cryptogarbage.
@Slift. The pre emption provisions should be the pertinent and overriding requirement…but I guess we will have to see .
@Slift. In most situations like this you have 30 days from receipt of the sale and repurchase agreement. The latter document often takes a little longer to be formally approved… hence I would not be surprised if Tullow has between 3-4 weeks to make its decision. The more the delay the better for Tullow as they can monitor the performance of the new wells that have been drilled and net off production form the purchase price. I also think the opportunity to forward sell short term production to a trading entity like Vitol or Trafigura would be a no brainer if they switched on.
The revised work programme have transformed the project economics in Kenya….the Government are keen to make progress so no reason why potential partners would not want to take on this project. The use of geothermal and wind power is running the facilities and the extended water distribution to local communities who will have a decent stake of the revenue means that only a few outstanding issues remain to resolve. On any sensible proposal Tullow might be able to get back hundreds of millions of past expenditure as well as payment for the resources base. The question is will they sell out completely , which i believe is the stated objective of their partners Total and Africa Oil Corp or still try to retain a carry on some production.
Either way I would be very disappointed if we did not achieve an enterprise value of between $700m to $1.5bn for our share. If any such transaction occurs Tullow could pay down debt, refinance on far less onerous terms and start paying either special dividends/buybacks or a combination of all the above. Kenya’s value has been almost totally ignored in most analysts calculations ….arguably there is only really upside …unless the Kenyan government want to prevaricate or not approve the FDP…..which would not make sense .
StanleyPro In reality it does not work like that. If oil prices allow early debt repayments then the debt can be renegotiated/rescheduled on better terms. If Kenya is farmed out or sold , which is likely as both Total and Africa Oil see the project as non core to their plans , we could see considerable capital appreciation . Also a farmer out of the Guyana acreage for a carried interest looks a distinct probability .
Jubileey . As you are one of these posters that feels the need to make the same point over and over again I feel i should at least put some balance into your thoughts. It is my understanding that 1) the partners in Uganda would have all had to “chip in to the cost of a pipeline “ resulting in a fully cost “price per barrel” of several dollars not the one dollar you keep mentioning . I do concede that they would be able to charge a Tariff for the pipeline but with out any other resource they are the only ones paying it !. 2) In comparison to the Kenyan PSC the terms of the Ugandan contract were considered less favourable on higher prices. We now know that the break even for the Kenyan project has been lowered to $22 per barrel and the reserves upgraded .
3) The Ugandan and Kenyan Government have both been guilty of trying to revise licence terms …but Ugandan election farce and the slow progress to commercialise the asset because of added government demands like paying for a refinery and making Tullow collect CGT for other oil companies suggest that the Government is not to be trusted.
4) If prices remain at these higher levels ..then Tullow has a valuable royalty above certain oil prices which makes your $1 jibe rather redundant.
5) If you sell an asset and redeploy the assets into IRRs of over 100% almost immediately and then compound that cash flow…you have hardly lost any money but taken control of your destiny
6) The requirement to sell an asset in order to refinance the bonds was pretty obvious…what other asset could they sell at a sensible price when oil prices were $30 per barrel ? We can see that the Anadarko interest in Ghana did not realise an attractive multiple either at the time head of terms were struck six months ago……producing assets are now extremely profitable and thanks goodness the management did not sell their crown jewel or lose operatorship of the fields by a partial sale or royalty deal.
So in conclusion, Total did get a “bargain” during a period when there were no real buyers of African oil projects…but if Tullow had tried to hold on to the project Museveni could have carried on frustrating FID and Tullow would not have been able to refinance. Luckily Tullow had a superb prospect inventory of infill drills in Ghana to drill…if it does not drill those wells it would lose value because the licenses would expire before the reserves could be fully exploited.
I hope these comments put balance and substance to the reasoning of Tullow management . When you are in a precarious financial position you have to make difficult choices but we still have a very attractive royalty should we experience a period of sustained higher oil prices.
Do me a favour …try and find an oil company in Ghana which has paid branch profits tax …then come back and post the details here ! These type of taxes are generally excluded from pscs and stabilisation clauses stop retrospective legislation.
@Showsnowman Kenya is short, not medium term ..the scale of the reserve upgrade was considerable relative to market cap and yet the price falls. Clearly the wrong price right now…in my opinion.
Absolute nonsense. How can buying reserves on 1.4times ebitdax be a failure?. The Kosmos conference call is forecasting 100kbpd production for Jubilee. This deal was done in April when oil and gas was unloved. Kosmos describe it as transformative.
Most of the land has been acquired. Turkana province may be able to haggle over a long term rental arrangement which is how some of these community owned parcel disputes are resolved. If anyone thinks the Kenyan government will allow a major project like this to get stalled over this negotiation …they are wrong…IMHO of course !
Oh yes, and you may wish to discuss what TOTAL meant when they described “3rd Party opportunities” in May 2021 for Laggan in page 9 of that previously provided link:
Toddle Pip !
@RNS Translator Happy to oblige. May I offer you the cryptic words of the Total E&P team in a May 2021 presentation, see page 9 of link below.
In the link Total state their disappointment with the Lyon well drilled in 2019 which was meant as a replenishment line for the pipeline …they also acknowledge their need to develop further opportunities nearby..but you question if they would by a proven asset by a pipeline with a FDP about to be sanctioned ? Good for you maestro . We will see who is right in due course. Thank you for the constructive debate but i must get back to the day job. I have purchased many millions of shares today .
https://www.geolsoc.org.uk/~/media/shared/documents/groups/specialist/energy/2021/New%20Learning%20from%20Exploration%20and%20Development%20in%20the%20UKCS%20Atlantic%20Margin%20Abstract%20Book.pdf
@Grey Panther I agree…I think they were too aggressive with their acid job …subsequent horizontals funded by a sale of Victory should do the trick ! Management are in the dog house and they no it. Need to pull a few rabbits out to re establish a proper valuation ….IMHO…of course !
If you want more information re expected life of field calcs you can use this link :
https://mem.lyellcollection.org/content/52/1/967/tab-figures-data
Why is this the only website that doesn’t have an edit function I have no idea. Guess I will have to be very careful posting here :)
Lagan With a gg fgs
Meant to say Lagan…i provided the link but was jumping in the shower. Freudian slip..now deal with the point and thanks for the correction which i had already spotted.
No value in an FDP ? I see. Carry on then ! Personally I think FDP approved fields are bread and butter for private equity groups. When the oil and gas price was low people were only interested in production but there is definitely interest in this project. If you were a little more experienced you might conclude that Total need to defer decommissioning costs on the Clair field by a simple pipeline extension to Victory. It a high IRR project because of the availability of nearby pipeline infrastructure which has spare capacity. This is basic stuff but you go ahead and frighten all the novices !
https://www.reuters.com/world/uk/uk-north-sea-oil-gas-fields-bought-by-private-groups-2021-05-25/
https://www.offshore-mag.com/field-development/article/14187706/corallian-energy-assessing-victory-tieback-west-of-shetland
Interesting call. I take it you have not put a value on Victory FDP due at the end of 2021 ? Potentially worth 2 times current market cap on its own ?
MIND THE GAP……(and it’s a pretty huge one )
You are talking nonsense. Yes, the coupon on the bond was maybe 100-125 basis points too high , but Ghana has a higher sovereign risk then say Gulf of Mexico production . The real scandal was the debt syndication fees which were far too high in my opinion. If Tullow pulls off a sensible recovery of past costs from Kenya it will be able to accelerate the well programme and refinance its bonds to more favourable terms . Look at the 100% IRR’s on projects at $55 per barrel. At these oil prices you could pay a 15% coupon for debt (which I am not suggesting) and still make a fortune.