Black magic...

19th Jan '09 by Stocktaculous

13 comments 2988 reads

What's everyone make of Tullow? It seems to have had a string of successes - as the CEO put it, in the past two years, Tullow has drilled 17 wells in Uganda and six in Ghana, with not one a “dry hole”.

There were a stream of exploration successes last year in Ghana and Uganda, Tullow’s two main areas of activity. http://www.telegraph.co.uk/finance/markets/questor/2789567/Tullow-Oil-is-a-good-long-term-play.html

Then, in recent weeks, a series of well results at the Buffalo and Giraffe wells in Ugandahas confirmed this potential - apparently, along with its partner, Heritage Oil, Tullow has located a field that could hold about 400m barrels of recoverable oil! http://news.bbc.co.uk/1/hi/business/7826016.stm

There's a refinancing coming up “in the next three or four weeks” so that could be a risk, especially after what happened with Oilexco. $400m needs to be rolled over or retired in the coming year but, even if it has to resort to a rights issue, the sum is less than a tenth of its current market value...

Seems pretty interesting, even with oil at $40 a barrel... Comments?

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Murakami

19th Jan '09

Yes, looks like a good business. There's some rumours knocking around on other boards that Exxon is interested in Tullow. I can't find any confirmatory articles on this, though, apart from this oblique reference in the Telegraph at Xmas, so it may just be the rampers talking nonsense.

Of the independents, Tullow Oil, up 21½ to 646½p, is the most likely be bought by one of the oil exploration majors, such as US giant Exxon Mobil, according to one City analyst. The Sunday Telegraph identified BP at the weekend as possible target for Exxon Mobil or even one of the Chinese state-owned oil companies. BP perked up 18 to 514¼p.

http://www.telegraph.co.uk/finance/markets/marketreport/4015914/Commodities-help-drive-FTSE-higher.html

This discusses Exxon being on the war-patth given its $37 billion in cash - http://www.oilandgaseurasia.com/news/p/0/news/3694 - but no specifics around Tullow.

While it's true that integrated oil giants such as Exxon Mobil (XOM), Chevron (CVX), BP (BP), Royal Dutch Shell (RDSA) and ConocoPhillips (COP) face weaker fourth-quarter profits, energy demand is depressed and retail gasoline prices are below $1.80 a gallon, opportunities for a major merger or acquisition remain ripe, analysts say.

Nothingventured

26th May '09

Where do we go from here?

After a fabulous run should I stick or twist?

oilretire

This would probably be a good read before you stick or twist........

http://ftalphaville.ft.com/lib/data/filecache/attachment/m/s/ms-oil-E-P.pdf

(link thanks to DearLeader on the AEX board)

warren12

cheers oilretire,

looks like I will be sticking with Tullow for now but I still have the nagging feeling we are due a market wide pullback from recent gains.

ManSiarad

27th May '09

Awaka-1 water-bearing.

Ah well, after 23 successes in a row, one can'r really complain, and it sounds as though it's not a complete dud in learning about the geology in the Butiaba area.

Kigogole-3 spuds early next month - they don't waste much time!

Exploration drilling update - Uganda

27/05/2009

http://www.tullowoil.com/tlw/media/news/2009/2009-05-27/

27 May 2009 - Tullow Oil plc (Tullow) announces that the Awaka-1 exploration well, which is located in the Butiaba region of Uganda Block 2, has encountered water bearing reservoir sands.

The well was drilled to a total depth of 700 metres and encountered over 96 metres of net reservoir overlain by a thick sealing claystone. Although the well only encountered water bearing sands, due to apparent trap failure at this location, it has opened up a new reservoir fairway between the Victoria Nile Delta and Escarpment plays. The information gained from the well will now be used to establish additional leads in this region.

emptyend

From what has been said (and consulting slide 16 from the Tullow results presentation) it looks as if Araka was between and on trend with the finds at Taitai and Karuka in the middle of block 2 - though I guess it might have been further north towards Kigogole? Either way they didn't name it as a prospect in their presentation - which perhaps is of some significance?

doverbeach

Awaka was in MS's recent valuation (link in oilretire's post above) at 27p per share unrisked, so it can hardly have been more than 5p risked.

macrus

3rd Jun '09

FWIW, and it's my opinion as well, here is Gordon Gray from Collins Stewart's headline view. The risk to my bearishness is well-explained in the quotation below. The good old Wermacht used to preach the concept of massing your forces behind a number of decision points (schwerpunkt) and then reinforcing success - an admirable concept for the successes of Tullow and HOIL.

In Tullow’s case we think the strength of management’s exploration record and its continued potential merit a much narrower discount to our “full” NAV estimate than most peers.

?          Risks of near-term weakness: take profits

We still see the potential for longer-term upside from Tullow as it continues to de-risk its high-potential exploration portfolio. However we also think the 27% price rise in the past month (>100% since Dec 08) - which took the shares to a new high in sterling terms recently - leaves them vulnerable to a price correction in the near term. As a result we recommend taking profits; we see better near-term upside elsewhere, notably in Premier and Venture.

?          Current valuations look increasingly stretched

Tullow’s share price strength has taken it to a level where valuations look increasingly stretched to us. The current price represents a c.35% premium to our central NAV estimate of 744p/sh (excluding exploration upside), and an 11% premium to our “full” NAV (including risked exploration upside) of 922p/sh. In Tullow’s case we think the strength of management’s exploration record and its continued potential merit a much narrower discount to our “full” NAV estimate than most peers. It is also fair to say as a result of the market’s improved risk appetite and the recovery in crude prices, several of the E&P stocks are now trading at premiums to central NAV. However Sell-rated SOCO is the only other E&P stock in our coverage which is trading at a premium to our “full” NAV estimate. We have raised our target price on Tullow to 950p/sh (vs 825p/sh) to reflect a target level broadly in line with our current “full” NAV, but this is still 7% below the current share price. We are not cutting our recommendation as we believe the longer term upside could still be significant, but this will depend on further de-risking of the exploration portfolio.

?          Near-term catalysts look less transformational

Tullow has numerous potential catalysts for 2009, including key wells in Uganda (Ngassa-2/Kigogole-3) and Ghana (Tweneboa-2/Teak) as well as a possible Uganda farmdown. However, these look far less transformational than the catalysts (e.g. Jubilee and Tweneboa-1) which have driven share price performance to date, particularly given that they are well known in the market. For example, we already have $1.3bn of value for Uganda (120p/sh) in our central NAV and a further $1.3bn of risked Ugandan upside (119p/sh) in our “full” NAV. Even if we completely derisk this year’s programme in Uganda, it would only take our full NAV to £10/sh.

4th Jun '09

In another thread (and amongst those who attended the DNX AGM on Monday) it was pointed out that the TLW market cap is now over £8bn.......or about 7 times DNX's market cap.

Comments like this, therefore:

Even if we completely derisk this year’s programme in Uganda, it would only take our full NAV to £10/sh.

....tend to ring a bell with me. It feels to me as if TLW is being fully-valued by the street because it is perceived to have more near-term explo upside than its FTSE100 peers such as BG and Cairn......but I'd wonder whether the outbreak of M&A further down the pecking order in the FTSE250 E&Ps might lead to some cash being switched out of TLW and into the smaller bid candidates?

One would have thought that if someone had been thinking of taking TLW out (for Ghana and Uganda) then they would already have made their move, given that neither of these areas are "new" and the oil price sentiment has now clearly turned!

7th Jun '09

General context piiece in the Irish press on Thursday, with a few interesting comments:

http://www.independent.ie/business/irish/from-minnow-to-giant-its-been-a--26year-journey-of-great-discovery-1761065.html

"The normal industry trend of investing in production as prices go up has failed," he says, adding that he believes there will be a serious squeeze on supplies within the next 12 months.

"I don't think people realise the lack of investment out there. It is not a pretty picture. Rising oil prices as the world comes out of recession is not what the world needs."........

One constant rumour that obviously bugs him is the takeover speculation. This crops up regularly with Tullow, and can invariably be traced back to a bit of mischief making by analysts. "Our independence is extremely important to us," Heavey insists, adding that it is also important to its African partners........

In Ghana, Tullow has agreed a deal which will see them give up $1bn worth of free gas from its Jubilee field. This, he explains will be used to get a local gas industry up and running, allowing the country to develop its own industries. "From a long- term perspective, we need these industries," he says, adding that what they are doing is creating a market, investing for the future.

JPGH

ee,

good finds.

Whilst I always admire this sort of "benevolance", in this case the home grown hero loving Irish press might be accused here of being caught in Heaveys ever bright headlights. The "free gas" is surplus/excess to TLW's Jubilee gas reinjection requirements so this additional associated gas produced with oil would otherwise have to be flared (or production cut back) or injected elsewhere, exported to WAGS Pipeline or given away "free". In this instance although given away for free I'd say its pretty much cost neutral in the long term.

26th Jun '09

http://uk.biz.yahoo.com/26062009/323/russia-s-gazprom-billion-dollar-namibia-deal.html

WINDHOEK (AFP) - Russian energy giant Gazprom said Friday its banking unit had struck a one-billion-dollar (711-million-euro) deal with Namibian energy company Namcor to build a new power plant in Namibia.

The deal was reached during a visit to Windhoek by Russian President Dmitry Medvedev, who left Namibia for Angola on Friday as he wraps up a four-nation African tour that has focused on tapping the continent's energy wealth.

Under the deal, Russia would build a power plant generating energy for both Namibia and South Africa, getting a foothold in the lucrative Kudu gas field, Namibia's only commercial field to date.

Looking good for a some movement finally on the Kudu development that has stagnated for last 3 years due in part to Namibian intransigence and Tullow not being all that bothered as they are too busy elsewhere.

Black magic...

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Stocktaculous

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