Oil explorer Tullow Oil (TLW) received a downbeat response to its first-half results this week - falling 15% since the numbers were announced on Wednesday (9 Sep) and one analyst has warned the company faces a critical final quarter of the year with much resting on the sale of its Ugandan asset.
The shares dipped 1% to 16.5p on Friday, as the fall-out from the results continued. They revealed swung to a deep first-half loss after output and crude prices both fell and it wrote down the value of its assets.
Pre-tax losses for the six months through June amounted to $1.44 billion, compared to a profit of $268.4 million for the prior year.
Revenue fell 16% to $731 million as production dropped 10% to 77,700 barrels of oil equivalent per day.
Tullow Oil said the loss was driven by exploration write-offs and impairments totalling $1.4bn before tax.
Net debt had increased to $3.02 billion, up from $2.95 billion. For context the company’s current market value is just £233 million.
A STARK SITUATION
Berenberg analyst James Carmichael spells out how the stark the situation facing the company is.
‘Under Tullow's base-case going concern oil price deck (2020/21/22: $40/$45/$50 per barrel), it will breach the 3.5x leverage covenant in December 2020 and June 2021, even if the Uganda deal completes.
‘It expects to secure an amendment or waiver to this covenant before completion of the September 2020 reserve-based lending (RBL) facility redetermination.
‘It has requested a January RBL redetermination and expects the liquidity forecast test to highlight a shortfall due to the $300 million convertible (2021) and $650 million senior notes (2022), unless it can: refinance one or both of those facilities; alter the assumptions/terms of the RBL; and/or secure new liquidity from banks and/or capital markets.’
With the company also looking to raise $1 billion from asset sales, including Uganda, Carmichael says the deal is ‘critical’ and notes that despite the company’s confidence in completing before the end of the year, he is cautious on the timing given the country’s track record on holding up transactions and with tax agreements still to be signed off.
The danger is that an investor day planned for the end of the year to announce plans for the future under Tullow’s new management, after the ignominious departure of Paul McDade in December 2019, will be completely overshadowed by balance sheet woes.
