Struggles in Tullow elsewhere stain good performance in Ghana

Tullow Oil plc reports that its group production has been strong going into the second half of 2020 and that its full-year guidance has narrowed to between 73,000 barrels of oil per day and 77,000 bopd following a good performance in Ghana.

The firm further says the impact of COVID-19 has been managed safely across the business with no adverse impact on production in Ghana.

In its half-year report, Tullow says its operational performance in Ghana has been strong in the first six months of the year, with uptime on both floating production and storage and offloading vessels in excess of 95%.

In line with expectations, Tullow produced an average 77,700 barrels per day across the group in the first half of the year at a realised oil price of US$52 per barrel, including hedge receipts of US$131 million, the company said.

It recorded revenue of US$731 million and gross profit of $164 million. However, after-tax losses of $1.3 billion took the shine off its performance.

“Loss after tax driven by exploration write-offs and impairments totalled US$1.4 billion pre-tax,” the half-year report says.

Liquidity shortfall

With a focus of the company’s exploration activities on Africa, the substantial losses were driven by a $941 million writedown of assets in Kenya and Uganda, Tullow reports. It says it risks defaulting on a debt facility if it does not resolve a “potential liquidity shortfall” from the pre-tax losses. 

A “redetermination” of its reserves-based lending facility will take place in January 2021. The company says it is exploring “various refinancing alternatives” but the news of losses in the half-year results pushed its shares down one-fifth in early trading yesterday in London. 

Tullow must show sufficient funds for the next 18 months – a period during which $650 million of debt will fall due in April 2022.

The company warns that if it is unable to show match funding expectations for the 18 months to July 2022, or resolve the “forecast liquidity shortfall” within 90 days of failing the January test, “there will be an event of default under the … facility by the end of April 2021”.

Asset quality remains robust

Tullow said it is considering several lines of action to address the potential shortfall, including refinancing the senior notes due in April 2022, or convertible bonds due in July 2021. It is also contemplating “securing new liquidity from banks or capital markets investors”.

“Despite the very tough conditions in the first half of this year, we have successfully delivered reliable production and major, sustainable reductions to our cost base,” said Rahul Dhir, chief executive officer of Tullow Oil plc. “We are also close to completing the important sale of our interests in Uganda.”

The Ugandan operations are being disposed of in a major deal with France’s Total.

“The quality of Tullow’s assets remains robust,” Dhir said. “Since my arrival as CEO, we have been developing new plans for our business, with the support of our joint-venture partners and expert advisors. 

“These plans will deliver enhanced value from our assets to benefit all our stakeholders including our host countries and investors. We will host a Capital Markets Day towards the end of 2020 at which we will update the market on these plans to deliver on Tullow’s true potential,” he said. 

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