Tullow Oil is a well-established and recognised oil explorer and producer, operating across Africa and South America. The company is listed on the premium segment of the London Stock Exchange, has just entered the FTSE250 and has a market capitalisation of £780 million.
Full year results to December 2020 were published on 10th March and we were delighted to have Rahul Dhir, Chief Executive Officer and Les Wood, Chief Financial Officer walk through these results and talk about the company’s prospects. A recording of the webinar is available here.
Rahul started by stating that the changes made in 2020 had left Tullow a stronger and more focussed company. The strategy to improve cash generation is working and delivering improved results although there is more to come. The operational turnaround benefits are clearly materialising. Self-help measures, including the disposal of assets, has delivered c.$1 billion and they reiterated plans made at the capital markets day to deliver $4bn of pre-financing cash flow at $55/bl oil prices over the next 10 years. Not surprisingly, they are geared to a rising oil price and another $10/bl would add $1.5bn to cash flow over that same period.
As part of the 10-year delivery plan, a lot of attention has been focussed on improving costs and sweating existing assets to improve reserve replacement. Looking specifically at 2021, the priorities are to hit production of 60,000-66,000 bopd and start the drilling campaign in Ghana which will contribute to growth in 2022. Further progress is expected in reducing costs which they hope can fall 20% putting them on the journey towards becoming a performance focussed company. Tullow’s slogan of “every barrel matters & every dollar counts” clearly reflects the change in mind set at the company.
This may sound slightly strange for an Oil company, but they also talked about their commitment to Net Zero by 2030. What this means in practice is cleaning the pipes and process modifications to eliminate the flaring of gas at the Jubilee and TEN fields – this will contribute 50% of the improvement. The rest will come from nature-based carbon reduction initiative such as afforestation and reforestation.
Les picked up on the financials in more detail and in particular the overall level of debt and the current ongoing negotiations. 2020 was a year of strong free cash flow with $432m of cash generated and the $4bn pre-financing cash…
