Tullow Oil cuts debt by $266m through bond buyback
Tullow Oil, the multinational oil and gas exploration and production company, has released its financial report for the first half of the year, outlining key figures and providing guidance for the remainder of 2023.
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Tullow Oil PLC highlighted progress on debt reduction, saying it stands at a ‘pivotal moment’, as new production from its oil fields offshore Ghana is coming ‘imminently’.
Tullow said it produced about 53,000 barrels of oil equivalent per day in the first half of 2023. This is down from 61,100 barrels per day throughout 2022.
Tullow kept its full-year guidance for 2023 at 58,000 to 64,000.
The expected increase in production in the second half is due to the Jubilee South East project coming onstream.
This is expected ‘imminently’, Tullow said.
It will raise gross production from Jubilee to over 100,000 barrels of oil per day, which Tullow and its partners plan to maintain for the next few years by means of infill drilling.
In the first half of 2023, the existing wells at Jubilee averaged net production of 28,000 barrels per day.
Those at the TEN fields, also offshore Ghana, averaged 11,000.
Net production from Gabon and Ivory Coast was 14,000 barrels of oil equivalent per day.
According to the oil company, total revenue for the first half of 2023 including hedging costs, reached approximately $0.8 billion.
The realised average oil price before hedging stood at around $81 per barrel, while the figure dropped to approximately $74 per barrel after hedging.
In terms of capital expenditure, the company incurred around $200 million during the first half of the year.
Tullow Oil’s full-year capital expenditure guidance remains at around $400 million.
Regarding decommissioning expenditure, the company spent roughly $40 million in the first half.
However, Tullow Oil has revised its full-year guidance to a reduced figure of around $70 million due to deferrals into 2024.
Additionally, the company plans to allocate around $20 million into escrow in 2023 to cover future decommissioning obligations in Ghana and Gabon.
Free cash flow for the first half of the year was negative, amounting to approximately -$100 million, aligning with expectations.
Tullow Oil anticipates a significant reversal in the second half of the year, generating around $200 million in free cash flow at an oil price of $80 per barrel.
The full-year free cash flow guidance remains unchanged at approximately $100 million, assuming an oil price of $80 per barrel in June, Tullow Oil announced the purchase of approximately $166 million of the 2025 Notes for a cash consideration of around $100 million.
This transaction resulted in a value accretion of approximately $86 million, achieved through a net debt reduction of around $66 million and coupon savings of approximately $20 million until maturity.
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Gross debt
During the first half of 2023, Tullow Oil managed to reduce gross debt by approximately $266 million through a combination of the 2025 Notes purchase and annual amortization of the 2026 Notes.
As of the end of the first half, the company’s net debt stood at around $1.9 billion and is projected to decrease further to around $1.7 billion by the end of the year.
Tullow Oil has reinstated its commodity hedging policy to provide downside protection.through appropriate instrument selection.
With these financial updates and strategic decisions, Tullow Oil aims to navigate the volatile oil and gas market and strengthen its position in the industry.
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The policy ensures 60 per cent protection for the first year and 30 per cent for the second year while maintaining exposure to upside potential of no less than 60 per cent
Repay
In March this year, Tullow indicated that it might not be able to fully repay its $2.5 billion notes outstanding which would mature in 2025 and 2026.
This is because the group’s Corporate Business Plan does not project sufficient free cash flow generation to allow it fully repay these notes when they fall due.
The group would, therefore, need to access debt markets within the viability assessment period with the directors confident that the Group would be able to secure the funding required to maintain adequate liquidity headroom throughout the period.
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This was disclosed in Tullow’s 2022 annual report and accounts which was released on March 24, 2023.
The report noted that management was focused on mitigating the risks around production, operating cost increases and potential outflows associated with disputes in order to reduce the likelihood of risks.
Furthermore, the directors have considered additional mitigating actions that may be available to the group such as incremental commodity hedging executed in periods of higher oil prices and alternative funding options.
It is also considering further rationalisation of the group’s cost base, including cuts to discretionary capital expenditure, portfolio management, and careful management of stakeholder relationships.
“Based on the results of the analysis and the ability to mitigate some of the risks associated with the downside scenarios, the board of directors has a reasonable expectation that the group will be able to continue in operation and meet its liabilities, including through refinancing activities as they fall due over the five-year period of their assessment,” the report noted.