Tullow reinstates hedging policy, maintains production guidance

Tullow Oil said in an update on Wednesday that during the first half of 2023, it recorded total revenue of around $0.8bn, including hedging costs.

The London-listed firm said the realised average oil price stood at around $81 per barrel before hedging, and $74 after hedging.

Capital expenditure in the first half amounted to about $200m, as the company maintained its full-year guidance of around $400m.

Regarding decommissioning expenditure, Tullow said it incurred $40m in the first half, as it revised its full-year guidance to $70m due to deferrals into 2024.

Additionally, a further $20m would be paid into escrow this year, to cover future decommissioning obligations in Ghana and Gabon.

In terms of free cash flow, Tullow Oil reported negative cash flow of around $100m in the first half, in line with expectations.

However, a significant reversal was anticipated in the second half of the year, with around $200m in free cash flow projected at an oil price of $80 per barrel.

The firm’s full-year free cash flow guidance remained unchanged at approximately $100m, at $80 per barrel.

Tullow noted that it recently announced the purchase of $166m of its 2025 notes for cash consideration of $100m.

The transaction was expected to deliver value accretion of $86m, resulting from a net debt reduction of around $66m and coupon savings of $20m until maturity.

During the first half, Tullow Oil said it reduced its gross debt by $266m through a combination of the 2025 notes purchase and annual amortisation of the 2026 notes.

As at the end of the half-year, the company's net debt stood at $1.9bn, and was projected to narrow to $1.7bn by year-end.

To manage commodity price volatility, Tullow said it had reinstated its commodity hedging policy.

The policy aimed to provide 60% downside protection for the first year and 30% for the second year, while maintaining at least 60% upside exposure through appropriate instrument selection.

On the operational front, Tullow said that in the first half, group production averaged 53,000 barrels of oil equivalent per day.

Net production from the Jubilee and TEN fields stood at around 28,000 barrels per day and 11,000 barrels per day, respectively.

Meanwhile, net production from Gabon and Côte d'Ivoire averaged 14,000 barrels of oil equivalent per day.

The company maintained its full-year group guidance for between 58,000 and 64,000 equivalent daily barrels.

“This is an exciting time for Tullow and a pivotal moment in 2023 as we are on the cusp of the start-up of Jubilee South East, a project that demonstrates our operational capability and continued investment in Ghana's world-class Jubilee field,” said chief executive officer Rahul Dhir.

“Gross production from the field is expected to exceed 100,000 barrels of oil per day, which will mark the outset of increased cash flow generation to materially deleverage our business.”

Dhir added that Tullow’s tender offer for the 2025 notes marked “an important step” in addressing its debt maturities, and reiterated its confidence in its business plan and outlook.

“It has also accelerated our deleveraging trajectory and we expect to continue this positive momentum in the second half of 2023 and beyond.”

At 0822 BST, shares in Tullow Oil were down 5.14% at 28.4p.

Reporting by Josh White for Sharecast.com.