Tullow Oil - Confident management focusing on Production

All,

Away from the headline numbers, it should be noted there is likely to be a further $75m receipt later this year from a contingency payment for the Ugandan sale that occurred in April 2020. Additionally, the completion of the Equatorial Assets and Gabon asset (both non-operational) for initial consideration of $135m to be received H1 2021, further boosts the available cash on balance sheet. This, combined with the recent rise in oil prices, explains the bullishness of the management about a refinancing of 2021 and 2022 bonds, reiterating that Tullow "has a mismatch of cashflow and maturities”. Our base-case scenario is that the 2021 bonds will mature on time and there is a potential for the raising of new debt with likely 2026/27 maturities. The Company were asked about equity raise but dismissed the possibility.

Tullow Oil reported their FY2020 numbers this morning, very much in line with expectations. However, we were unable to ask questions on the call this morning so we are awaiting a response from the Company before we update our model. We have outstanding issues in relation to the uptick in OPEX for FY20 and FY21 over what was reported in H1 2020 (and don’t think it is explained by the removal of Assets held for sale). Additionally, we were surprised that no one asked about the amortisation schedule for the RBL facility, which, if remaining the same, reduces by $211m every six months from April 2021. (Note, it is a reduction in capacity, and therefore minimal repayment required in April (c.$50m).

The Company are usually very responsive so we will publish an updated model soon after.

As a reminder, we remain invested in the Tullow structure. We invested 2% of NAV in the 2022 bonds at 85% (currently 94% bid) and 3% of NAV in the 2025 bonds at 70% (currently 84% bid) in early January. We added a 4% of NAV in the equity at 52p (currently 52.90p).

Happy to discuss.

Tomás

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E: tmannion@sarria.co.uk
T: +44 20 3744 7009

M:+44 7786 705 806
www.sarria.co.uk