Tullow Oil Share Discussion Threads

[xxnjr1] 05/9/2018 19:56

Mcsean2164,

What get's an E&P's share price moving out of the pack is usually one of

(1) A sustained increase in Oil Price.
(2) Organic reserves growth through material discoveries.
(3) Accelerating production growth for say the next 3 yrs.

or best of all, all of the above happening at the same time.

UK mid-cap E&P's are out of favour. TLW share price tracks CNE fairly closely these days, although latter has very much less debt. PMO has been doing slightly better, although in similar debt position to TLW.

(1)(2)(3) are perfectly aligned at Lundin Petroleum right now, the share price has gone up, and their future looks bright.

wrt Tullow, maybe the debt needs to come down faster (still feels a bit like they are the walking wounded), both Ghana fields on plateau consistently, a big discovery somewhere, Uganda deal completion, chunky free cash flow enabling picking up an asset somewhere with some (2)&(3) upside. FWIW.

(sorry doesn't really answer your Q, as all of above may get us back to £5)

edit: $85 Brent may do it :-)

[mcsean2164] 05/9/2018 17:51

bootycall/ xxjnr1,

Thanks to both your in depth analysis. A question, if I might, what if anything will get the share price above £3?

Oilprice is flying, ITLOS went in Tullows favour, a quarter of a billion lost but in the past. Surely with $77.50 brent we should be flying?

[xxnjr1] 05/9/2018 13:28

Thanks for the link bootycall. I'll have a quick read of that later this evening. Did have a quick look at Page 9 - yes that's correct 75% of reserves in 1 & 2, or, to the NE. Exploration started in the SW, with Turaco 1 & 2, and then moved in a NE direction towards Block 1. Unfortunately I didn't check the map before I wrote 33120, and I had the labelling of 1/2/3A the wrong way round in my head, although arriving at a similar result (85% reserves in NE). The success rate was 90% until they got to the end of the play fairway, then it dropped to 0%. I do agree that big fields get bigger, and that will most likely be the case here. Total/CNOOC vs ENI - totally agree. Agree TLW managed to eventually extricate themselves from Uganda without serious losses, although they did write down $330m after the Total/CNOOC farm down. TLW will end up with 10%, after Ug.gov back in. OK I'll shut up for a bit then. All the best bootycall!

[bootycall] 05/9/2018 10:22

xxxnjr1.I wrote a long rebuttal of some of your comments on my mobile and lost the data when I got timed out by ADVFN. Just to make a few salient points. I refer to a report from Oxford Energy on the subject (Page 9 see link below), which states that 75% of reserves from the unitisation of the three Ugandan blocks have been found in Blocks 1&2. Tullow executed a back to back transaction, farming out to Total and Cnooc, with its purchase of Heritages interest in 2010 (even if you include the cost of purchasing the 50% of Block 2 which they acquired with the acquisition of Hardman), so they fully recovered their cost on the transaction immediately without needing to "double up" . Furthermore, they much preferred CNOOC and Total over ENI, as investment partners, which is quite important considering there are field development costs of an estimated $14bn ! It is noteworthy that more recently the Ugandan Government has lifted its estimate of reserves in place to 6.5bn barrels. Until the fields are put onto production ,we will have to wait for the percentage recoverable. Oxford Energy note that Cnooc, Total and Tullow, did a joint presentation in Kampala in 2014, where estimated recoverable reserves were believed to be between 1.8bn-2.2bn (I acknowledge the accounts refer to 1.7bn). I believe the figure is not fully reflected in the accounts because a number of wells were delayed whilst the Ugandan Government prevaricated. I think the success rate has been close to 90% on over 80 wells drilled thus far... so its not too big a call on my part.
How about we call a truce, before we bore everyone to death about a subject nine years ago? You certainly know how to keep a man on his toes.

hxxps://www.oxfordenergy.org/wpcms/wp-content/uploads/2015/10/WPM-601.pdf

[xxnjr1] 05/9/2018 02:11

Bootycall - wrt your point about the "doubling up" in Uganda resulting in 3X proven reserves - this doesn't seem to be the case.

The gross discovered resource number in Uganda today is about 1.7bn gross.

At end 2009 TLW held BLK 1:50% BLK 2:100% BLK 3A:50% and discovered resource was >800m gross (from the annual report).

On 23/11/2009 HOIL announced selling Uganda, thats BLK 1:50% and BLK 3A 50%
On 17/01/2010 TLW exercised pre-emption rights (the "doubling up"), ending up with 100% of 1/2/3A

Since year end 2009, another 900m gross bbls have been discovered.

If you assume for arguments sake, of that, 15% was BLK 1/30% BLK 2/55% BLK 3A then new discovered oil since HOIL transaction gross would be BLK 1 135m Block 3A 495m Total 630m

So at a net level the "doubling up" HOIL assets added 315m to the existing 800m.

More like 1.39X, rather than the 3X you postulated.

That's my first point, and here's my second. For your delectation, these are the amounts TLW have written off on exploration in recent years.

2010 $155m
2011 $122m
2012 $671m
2013 $871m
2014 $1657m
2015 $749m
2016 $723m
Total $4948m

Add another $275m for Seadrill/Kosmos if not in above.

It's worse than I thought! That's a lot of dosh down the drain, just 'cos Tullow thought "we must be one of the best explorers on the planet" I think it's called hubris. With that cash drain, and loss of confidence, you can see why Tullow are somewhat reticent to get the drill bits spinning all over the Atlantic once more.

That will do for now.

[oilretire] 04/9/2018 19:47

UK independent Tullow Oil has spudded the Cormorant exploration well in the Walvis Basin offshore Namibia and highlighted by us as a well to watch in our ‘Exploration Watch: 2018 exploration wells’ report. The well is targeting resources of 125mmbbls in a basin slope Cenomanian Cretaceous fan covering 120km2. If successful, the well would open up a potential 1bnbbls in other fans for the company together with the rest of the basin for the industry, where majors have been building a position in recent years, most recently with ExxonMobil’s 30% farm in to AziNam’s PEL 44 licence immediately to the south of Cormorant. The well is one of two high profile wells to be drilled in Namibia this year, with Chariot Oil & Gas due to drill its Prospect S well from mid-October and also covered in our report.

Cormorant is expected to be a relatively simple well to drill, with minimal casing strings required so that, with current lower rig rates, it can be drilled for $35-$45m. The prospect is a turbidite identified on 3D seismic and is a stratigraphic trap that relies on a stratigraphic pinch out at the feeder. As such it has a higher geological risk, reflected in the company’s estimated COS of 15% . One of the fans that would be de-risked by success here is Osprey, which sits in PEL 30 to the north of Cormorant and in which Tullow holds a 15% WI. Osprey has been independently assessed by Gustavson for operator Eco Atlantic (32.5%) to hold gross prospective resources of 245.5mmbls.

On completion of the Cormorant well, the Ocean Rig Poseidon will move south to PEL 71 to drill Prospect S for Chariot Oil & Gas. Prospect S is targeting 459mmbbls in three separate Cretaceous sands draped over a volcanic structure. The presence of source and reservoir was established in Namibia in 2013 by HRT in the Wingat and Murombe wells (located in the PEL 82 licence, now operated by Galp and partnered by ExxonMobil) but these remain the key risks for Prospect S, which has been independently assessed by NSAI to have a COS of 29%. If successful, Chariot plans to move the drillship to drill Prospect W, which is targeting 284mmbbls

[mariopeter] 04/9/2018 14:20

Golden crosses on the Tullow chart. This was a five year and zoomed in on the weighted averages. Suggests we are off to £3.




free stock charts from uk.advfn.com

[mariopeter] 04/9/2018 09:40

Meantime Brent is just shy of $80....Iran.

[mariopeter] 04/9/2018 09:24

Good find Jimarilo.

Italian debt may be a problem this autumn. That would help UK Brexit negotiators.

[jimarilo] 04/9/2018 07:12

Drilling starts at Cormorant, 34 days to completion

[n73] 04/9/2018 05:46

Xxnjr1,You could also add to the list (where Tullow is struggling) that next during decade it's going to get even harder for explorers to find oil reserves. And where it's found its getting more expensive to get too.

[xxnjr1] 03/9/2018 20:41

n73 you could also add, a bit of argy-bargy in less developed markets. Started in Turkey, then Buenos Aires, due to stronger dollar. Corporative's borrowed loads of dollars, some unhedged. Easy money now over. Most oil demand growth forecast from non OECD economies. If debt issues in non OECD slow oil demand, then things could turn nasty.

[xxnjr1] 03/9/2018 20:29

well I did add "all imo" bootycall! On one small point, I don't recall mentioning Tullow "overpaid" in Uganda! My point was more about the level of exposure the company committed to at that time. Even Tullow, I suspect, would admit, this was a mistake. Yes they added a lot of reserves, but are you saying the 3X came from exploring the "doubling up" equity? It was a long time ago, I've forgotten. Whilst on Uganda, Mputa-1 was spud in 2005. First oil will not now be until 2022(?)earliest. I'm sure Tullow didn't see that coming - 17 yrs to 1st oil. No need to explain about Shell and French Guyane - I was around at the time. I see Tullow more as a recovery play, rather than an exploration play. The E&P business can be a bit of a lottery. At anyone time, only a small handful of explorers have material success. Tullow were winners. There's now been a long fallow period. One can only hope "reversion to mean" comes to the rescue with the coming drills. I'll take success, or failure, as it comes, and adjust my holding accordingly. As ever, the drill bit will be the final arbiter.

[n73] 03/9/2018 19:20

without a doubt an interesting end of year approaches- Brexit vote- Mid term elections in USA- will Trump survive- will May still be on the job

[jimarilo] 03/9/2018 11:29

Rig On Site to Drill Cormorant-1 in PEL 37 Offshore Namibia

Spud later today

[xxnjr1] 03/9/2018 11:05

Mate - I'm long Tullow. Never shorted it in my life. Also long Kosmos. I'm hoping TLW will recover, but given previous, and numerous missteps by current management, I can't exactly say my confidence levels are particularly high at the moment. The way I see it, Tullow made some good commercial deals in its early days. Bought some gas assets from BP, and Esso (as it then was) in the UKNS in about 2000. In 2004 did a brilliant deal Energy Africa, which has paid for itself many times over. EA assets became the cash engine of the group and enabled pursuit of Uganda (actually an EA asset) and then Ghana. But there have been a whole array of bad decisions. Doubling up on Uganda hasn't paid off. Acquiring Dutch gas assets then selling them off a few years later with large write down. Same with Norway. Spent a lot on an acquisition. Made a decent discovery, then forced to sell the lot, with a massive write down. Then there was over confidence in exploration [AH ... "we must be the best explorer on the planet" c2008]. That resulted in routinely spending $500m a year just on exploration (from memory) without making a single basin opening discovery (apart from Norway, operated by a.n.other, sold at a loss). Historically TLW have been big risk takers. Sometimes appetite for risk has clouded judgement imo (e.g. Uganda, or having 50% of DWT Ghana, or drilling Jubilee "look-a-likes" all over the equatorial margins and not finding oil). That appetite for risk, and a failure to balance risk with achievable exit strategies, has overloaded the company with debt. The debt means Tullow have been out manouvered by Kosmos, who picked up Hess's assets in Equatorial Guinea, as well as a lot of blocks in Cote d'Ivoire that Tullow were after. Kosmos got everything they wanted in CdI, Tullow didn't. Kosmos may never make another commercial discovery, but at least they have a coherent and focussed strategy, with decent big name farm in partners. Tullow's exploration portfolio hopper needs replenishing, but this doesn't seem to be happening, in a visible way. Where do we go if Namibia/Guyana disappoint? W/Afr "non-op" is getting a bit long in the tooth, where are the new deals to replace these maturing assets? Current management (CM) have got us into this mess, by over extending the company, and not appreciating the downside. Hopefully CM can navigate a way out, but maybe it's time for a changing of the guard in some quarters. All imo, bootycall!

[mcsean2164] 03/9/2018 09:45

Great write up bootycall, it's extremely frustrating being an oil bull invested in Tullow but good to get a positive take on the situation.

S

[subsurface] 03/9/2018 09:22

The chart is forming a V shape at the moment maybe its telling us something!

[bootycall] 03/9/2018 07:40

xxnjr1. Please go ahead and short away. I was deeply disappointed by the Kosmos result...I also wanted blood. Why indeed was no person fired for what appears to be such a whopping administrative error ?Now let’s consider the mitigating circumstances. The rig contract was an eye watering $600k per day and TLW was in a toxic position legally and politically. With acreage commitments on both sides of the disputed Ghana/Ivory Coast border and such an aggressive land grab from the Ivorians on their principal asset, they needed to proceed with great caution. The argument that they could have drilled elsewhere and avoided force majeure ( used by Seadrill in the court case) whilst technically correct, is forgetting the fact that other locations did not offer the same cost benefit / or cost recovery terms. They lost on a point of law not a reflection of the pragmatic business reasons for contract termination . How do you redeploy a rig into other acreage when you do not have the same licence partners in other locations to contribute to the day rate? The reason it cost Tullow so much money is that the ITLOS debacle occurred in the most vicious downturn where the RIG OPERATOR could not deploy on similar rates anywhere else. Sounds like a bit of a “black swan “ event to me.The main board only approved the fast drill out of Ten and Jubilee on such a long term contract because of the anticipated cash flows,attractive cost recovery and prevailing oil prices. I remember at the time how African E&P companies were complaining at lack of rig availability and the service companies could dictate terms. The most interesting point I think I can probably make in Tullow’s defence is that they believed that were executing an agreed position amongst the partners regardless of Kosmos ability to wriggle out of their liability. Interesting that all of the other partners to the agreement have now paid their cash calls and not entered into further legal disputes with Tullow. Suggests that Tullows argument that the operating committee followed normal industry procedures must be at least partially true . Which brings me back to some other homes truths. Perhaps you will contrast the conservatism of Tullows market guidance with the forward looking statements in Kosmos quarterly reports. Then look at the outperformance of Kosmos stock even though they have very similar asset portfolios. Isn’t it great to be owned by private equity. Interesting how Tullow has just cleaned up in the latest licensing round in the Ivory Coast and then farmed straight out to Cairn. I wonder whether Kosmos would have been interested in those assets ? :)
I really enjoy your posts which are well researched and show great industry knowledge but in my humble ( ok sometimes big headed ) opinion, I am just turning major bull on a Tullow. All of the analysts are by necessity applying normal decline rates on Jubilee production because they have not yet seen a reserve report that allows them to do much to the contrary. I believe that this will change decisively during the current drilling programme. I am willing to speculate that Tullow will show it can produce to the full nameplate capacity of the two FPSOs for several years as a result of infill drilling. Furthermore if one applies a $70 oil price to this level of production,the share price is headed substantially higher based on Ghana alone. Jubilee, has a history of substantial reserve upgrades. This, I believe,is a function of the difficulty of initially estimating recoverability ratios on immature fields. This was exacerbated by technical uncertainty of whether a gas offtake from Jubilee would be able to get financing. More recently we had the potential issue of whether there would be reservoir damage from high production rates without remedial work opportunities during the ITLOS dispute. We even had to retrofit filters to existing wells to stop sand clogging. I am not a petroleum engineer but I have researched this in some depth.
To achieve share price outperformance, I do accept there needs to be a catalyst. I also agree that the Namibian acreage represents a cluster of 100m barrel prospects and is pretty high risk. I doubt if a Kenyan farm in is around the corner. The other non operated acreage in West Africa is exceptionally high return but does not materially change things. So why am I bullish ? Quite simply ... Guyana ! If the stock market does not wake up ...I speculate that a major will take a pop at Tullow and then Exxon will in my opinion most likely join in. Do you honestly think the board of Tullow is so stupid that they will not now prioritise Guyana ? Eco Atlantic has to the best of my knowledge specifically referred to their “partner”; on the licence agreeing that certain prospects on this acreage have been derisked. This is hardly surprising since they are close to finishing their own 3D seismic interpretation and Hammerhead is 7kms from the block and one the prospects overlaps. If Tullow was previously talking about 1bn barrels of risked prospects on the block, I believe the number is more like 5-6 billion unrisked. I do accept that these prospects are channel sands and similar to Ghana will have to be drilled out rather than inferred as a stratigraphic resource. Shorting Tullow could represent a short term trading opportunity if oil prices come off. From where I am standing Tullow has 20-30p downside and enormous upside. Shorting can be dangerous to your health.

[oilretire] 02/9/2018 21:29

They'll probably do a couple of hours of DP trials once the arrive before settling onto the exact spud location.

[billy_buffin] 02/9/2018 14:42

Poseidon under way supposedly to 'Trial Area' again.

Pretty sure off to site though with escort vessels now. Holding present course would take them to well site.

[xxnjr1] 01/9/2018 00:05

Wellcome back n73. Trust you enjoyed some quality time during the Season. Nothing much happened wrt Tullow. A deathoning (sic) silence on their part. Maybe it's terminal. Perhaps not. Who knows? Not sure if you were around for the verdicts? T vs Seadrill and T vs Kosmos. T 0 - others 2. Minus about $275m and no longer in the Premiership. (Nobody lost their job over this). We are about to drill a 'high impact' well in Namibia. It's not actually 'high impact', but opens the door to several look-a-like follow on prospects, although there may not be any cash to drill the follow ons. Given TLW's recent drilling results, could be a good time to short ;-) Our new Chairwoman Dorothy has recently started in her new role but so far there's been a deafening silence from her too. Maybe she's on holiday? Uganda deal completion - another deafening silence. N73 you haven't missed much really. I can confirm I remain solvent and the buses ran as scheduled! Have a lovely week-end.