 xxnjr, thanks for that. Yes, my bearish view stemmed from a belief that we only had 168.4 million barrels of P2 reserves as at 30 06 24 (slide 4)
and that we were extracting it at the rate of 36m barrels per year (90k bopd), so I had no problem figuring our cash flows would end on 01 01 2029 and that this explained the 23% gross redemption yield on our bonds, a rate of interest that would produce a debt principal default even if we could pay the interest at that sort of rate on any replacement finance with a redemption date extended to 31 12 28.
Slide 6 with its P2 valuation estimate of $3bn, (say $2bn to get rid of all our debts and $1bn to cover the market cap) left me alarmed because a 10% discount rate to get that $3bn figure sounds more like fraud if we are paying 15% for the Glencore finance: you do not want to borrow at 15% and invest it only to get 10% even if the accounting rules allow you to report a statutory profit doing that.
You make an excellent point about hedging costs. These make a lot of replacement debt finance prohibitively expensive, but all our BoD probably care about is getting their salaries paid. I am not a great believer in the narrative that we are at an inflection point where we are about to start some serious equity value accretion. We are still just working for the debt holders. Anyway it is good to know we have more that 4.5 years of P2 reserves. Thanks. |
Noball,
Oil Reserves. Perhaps the easiest way to look at it, is to go to p191 of the 2023 Annual Report. At year end
Ghana Commercial Reserves were 143.9 mmbbls. 2023 Ghana production was 15.5 mmbbls.
Reserve life is kind of 143.9/15.5 = 9.28 years.
Group Commercial Reserves (includes non-op) 202.1 mmbbls. 2023 production 20.4 mmbbls. Reserve life = 202.1/20.4 =9.9yrs
If you want to delve more deeply into the various reserve subsets and a description of the assets then download this audited reserves report
On your point about the current share price being an option on higher Oil Prices going forwards, one thing to bear in mind is that any large scale >$1bn new bond issuance (if that happens) would probably come with strings attached, stipulating that say 70% of the next 2yrs, or 3yrs of production has to be hedged, with the hedges being placed within a limited time horizon from bond signing. This (i think IIRC) is what happened with the 2026 bonds. The so called 'legacy hedges' (a description that Tullow tend to use rather more loosely than is actually the case). Hedges had to be placed (or written) within a limited timeframe, at a time when oil prices were weak, meaning that the company lost out on about $500m to $600m of revenue as a result of terms within the bond contract.
A lot of the cash has been eaten up by adverse hedging effects. Then add on the interest from the bonds. Tullow has been a cash machine for other parties, not shareholders. |
https://edition.pagesuite.com/html5/reader/production/default.aspx?pubname=&pubid=ba4b284e-4ba7-4f0c-9305-3600bc3f8902 |
Ouch. I have only 20k left of this dog. Sold most at a loss at 27 p and glad to be done The geology team are an embarrassment after Dhir |
Bought in today. GLA. :) |
I would expect DT to give the Israelis encouragement to take out Fourdow (that underground enrichment place near Isfahan), the Aras heavy water plant, Parchin (the nuclear detonator experimental place) and maybe leave it at that. American involvement will only make a lot of Iranians more loyal to the regime.
The way to undermine the regime further is not to attack Iran's exports by wiping out its oil refineries, etc., but rather to undermine the rial with sanctions so that Iranian people rebel against the regime and get rid of it themselves. Yes, pushing up the oil price would help us, but it might help Russia too. |
City, my sentiments exactly. That's even without the involvement of the IAF which will induce an Iranian response. 14 days to go to find out. |
The only 90 percent dead certainty is that Iran is going to be attacked by DT. They tried to assassinate him in the USA. They will cause havoc and Iran may even attack SA in Revenge. Bad news for the ME but the oil price will move how much who knows. |
xxnjr, thank you for your helpful and factual reply in 61015, as always.
Does anybody have any views on what the likely interest rate will be on refinancing the 2026 senior secured bond will be, assuming the new finance is also secured?
I see the consensus analysts' eps forecast is as below:
31-Dec-24 21.75p PE 1.1
31-Dec-25 17.36p PE 1.4
31-Dec-26 13.39p PE 1.8
What I do not understand is how an NPV(10) valuation of our P2 reserves of $3bn is sufficient to repay both our total debt and leave anything much to cover our current market cap, the reason I think our shares are basically an out-of-the-money call option on the oil price being higher than it is now and remaining high until the end of 2028, when our P2 reserves run out, and on finding some new P2 reserves that are not already included in that valuation.
The $3bn figure seems a gross overvaluation of our P2 reserves if our new finance is going to cost more than 10%, doubtless the reason our CEO is leaving, why he cannot face us, and the reason why our company attracts shorters. Any views?
It is no good reporting (statutory or even adjusted) profits as per the analysts' forecasts above if you are borrowing at 18% and only earning a return of 10% on your capital employed, is it because then you are making economic losses whilst reporting 'profits', the problem being the accounts do not charge for the cost of equity.
I get it that the biggest part of our cost of capital is debt rather than equity. But you are supposed to discount future cash flows by your weighted average cost of capital, and ours definitely is not 10%, even if our soon-to-be-gone CEO thinks it is. Bootycall, do you have any views on this? |
Brent 76.65 |
Well said Jenny.
Intresting detail about the arbitration posted on LSE |
This is the first time I've visited this board.
Worthy of mention are the erudite exchanges between XX and Booty.
So refreshing to find a sensible BB. |
https://www.fxempire.com/forecasts/article/natural-gas-and-oil-forecast-will-cold-weather-boost-heating-fuel-demand-1487733 |
Who has the bottle to keep them open.....and get burned. |
Combined with the shorts below 0.5%, the total short is 17.6% as of last night of the FREE FLOAT which excludes the top 5 shareholders i believe .
Do not rely on the facts or opinions expressed when making an investment decision. |
What's the taking on the other two disputes? Two disputed taw assessments, which total USD387 million plus penalties, breach Tullow Ghana's rights under its petroleum agreements.https://www.morningstar.co.uk/uk/news/AN_1676363389255508000/tullow-oil-files-for-arbitration-over-usd387-million-tax-dispute.aspx |
We used to get that data from Euroclear which included all shorts below 0.5%.
But BREXIT (i think) means that data is no longer available. |
Booty
There's ony 2.9% of stock out on loan:
Fund % short change Date changed
Citadel Advisors LLC 0.63% 0.10% 18 Dec 2024
Hartree Partners Securities (UK) Limited 0.79% 0.0% 9 Dec 2024
Pictet Asset Management Ltd 1.50% 0.09% 1 Jan 2025
Total 2.92%
Where did you get 20% from? |
Happy New Year xxnjr . I fully accept, as do the Company, that production will temporarily dip below 80k gross on Jubilee in 2026..it is a mature field with a decline ratio..aggravated by problems with the power gen sets units topside. Not sure what the decline is for Jubliee South East…as a new field the decline should be more modest to begin with ? I would envisage production closer to 90k gross in 2027…so we can all beat ourselves up over a net 4-5k bpd lost for 12 months…not because there are insufficient reserves …but because of rig accessibility.
Remember the reserves will be produced so the diminution in value is in relation to cash flow yield not value per share. The improved seismic should allow greater productivity per well going forward…but lets just talk about the negatives shall we ?
To try and calculate production that only a petroleum engineer with all the data can appraise is a mugs game… people need to look big picture at Tullow or they will miss a tremendous opportunity. I believe there is now positive momentum in both Ghana and Kenya and the share price in no way reflects the potential because of understandable concerns over the bond refinancing which should shortly be dealt with. Rahul Dhir, has lost the confidence of many investors …in the vacuum no one is discussing strategy …but this Company has almost paid down its debt to a sensible level and cash flows will soon be aimed at major growth projects…all in my opinion of course. Booty
DYOR |
Hello @bootycall
Happy New Year!,
Well the reason I 'failed' to mention depletion, was because my post was written specifically in response to Nobulls 61014, which raised some questions about reserves. For example, how much reserves might be added by the 2 wells being drilled in 2025? and future wells beyond that? So I just pulled the data from my spreadsheet and added a few comments to make sense of it (at least from my perspective).
Since you've raised 'Depletion'. Let me add a few comments. Underlying decline rate for Jubilee is kind of 20% to 25%. Thats without drilling any wells. The whole point of drilling the majority of those 23 wells on Jubilee was to get production up from say 75/90 Kbopd to say 110/120 Kbopd plateau and hopefully maintain it over 100K until 2030 with further drilling. Some, including your good self ISTR, even suggested 130K might be feasible. Well that just hasn't happened.
In 2024, March was the highest Jubilee production month at 98.6K. 9 months later I'd suggest, or rather tanker movements suggest, Jubilee 2024 exit rate is at 80K (or even slightly below). That's a decline rate of 18.9% in only 9 months!
TLW have changed their messaging recently. They are rather good at doing that!!!
In the half year results, they said
"This improved rate of water injection, together with the new J70 water injection well brought on-stream in June, is resulting in a good uplift in reservoir pressure which is already increasing production levels and offsetting decline.
Whereas in the Nov trading update, they said
"Water injection capacity has been increased to c.300 bwpd and gas offtake is currently c.100 mmscfpd. Combined with further production optimisation activities, this is expected to mitigate the declines experienced in the second half of 2024."
Since they can't be bothered to tell us what all those guests in the 500 bed hotel parked next to Jubilee are doing then it's difficult to say whether they will be successful in mitigating further decline, or not.
I do think some of the w/inj wells were drilled in the wrong place as per my previous. It was always a Q in my mind and one that normally helpful IR declined to answer! I guess we'll have to wait for the 2024AR reserves report to clarify matters. |
XX tells it how it is, he was the first to high light the fall off in Jubilee production from tanker loading data.
Jubilee capacity 120,000 bbls/d Ten 80,000 we are circa 50 % |
Xxnjr has always looked for the negative aspects of almost anything TLW does. Plenty of "speculation " and "opinions ". Everything should be on a RNS down to when the drilling ship refuels. I take it all with a pinch of salt. |
@xxnjr
1) Your analysis forgets to mention the normal depletion that should be expected from a mature field, although i do accept a specific write off was made post J069 in the specific area adjacent on the well on the main field .Remember up until now the field has been getting bigger over time not smaller..function of long term recovery ratio adjustment .
2) I believe as part of the bond refinancing the bondholders commission their own reserve report
3) Post a theoretical approval of the FDP for Ten , the condensate field being tied up to the FPSO would have major positive implications for reserves and allow a write back of the absurd previous negative carrying value of the TEN reserves on the assumption the field would cease to operate n first break of the FPSO. This is particularly absurd when you allow for a $50m reduction in the annual lease post 2025.
4) The new government is likely to have to pay $10m? costs to Tullow and make up arrears of close to $70-80m ?
5) The new seismic on Jubilee will give petroleum engineers much greater clarity on where to drill with commensurate uplift in well productivity. Nothing to stop them doing the same on Ten.
Despite all the above , you have made some decent technical points that require explanation…however, i am starting to believe you are a shorter because you must be aware that this was a comprehensive legal defeat for the previous Ghanaian government.The issue of loan interest is particularly mute and important for future tax requirements. Their outstanding claim on the turret insurance is ridiculous, as i understand both Kosmos and the state owned petroleum company chose not to pay any premiums before the issue arose.IMO, most of the tax claim was a scam. John Mahama’s administration chose not to make a claim on the turret issue so they are not tainted by this defeat…in fact they will be able to ridicule the opposition and say they will now work with the international oil companies to the benefit of the population.
I have bought quite a few Tullow today. The short position on the free float is close to 20%…which may help in understanding responses from certain brokers and posters.
In my opinion , post this arbitration result…(which i have predicted for ages) the bond refinancing should be ready to sign off …albeit with a higher coupon reflective of the rates prevailing in the market for this type of exposure. Booty
Please do not rely on the facts or opinions above when making an investment decision. |
Brent currently trading at 75.72 |
Tullow Oil plc
24.72 GBX +2.86 (13.08%)
Jan 3, 11:43 GMT |
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