Tullow Oil cuts capex, has $700m liquidity

The company has completed the bi-annual redetermination of its reserves-based lending credit facility with $1.9bn of debt capacity approved by the lending syndicate, giving the group around $700m liquidity headroom of undrawn facilities and free cash at the start of the second quarter of the year.

Tullow said this level of headroom was deemed "appropriate" by the board given the group's "much-reduced future capital commitments".

The company also said that it is now targeting capex of around $300m in 2020, down from $350m previously, and decommissioning expenditure of approximately $65 million, down from $100m.

"Savings have been identified primarily through the deferral of activities across the portfolio and through savings that can be realised by ongoing farm-down activities," it said. "In Ghana, for example, savings will be made through the early termination of the Maersk Venturer rig and the deferral of some well activity, combined with the removal of any non-critical work that does not focus on safety and asset reliability."

With the benefit of its hedging policy and production remaining within guidance of between 70,000 and 80,000 barrels of oil per day, Tullow has a free cash flow breakeven oil price of around $35 a barrel for the rest of the year.

The company said production operations in West Africa have not yet been affected by Covid-19.

Chief financial officer Les Wood said: "Securing the ongoing support of our RBL lending banks and confirming our debt capacity has been important given the current challenging environment. Today's positive news verifies the strength of our producing assets and robust hedging strategy which underpin the RBL and, combined with the further cost savings we have identified, confirms the strength of our liquidity in the medium-term.

"Nevertheless, strengthening the balance sheet continues to be a key priority with the group seeking to raise proceeds in excess of $1 billion through portfolio management."

RBC Capital Markets said: "Management is responding aggressively to the oil price collapse, but ongoing RBL redeterminations are expected to cast a shadow over the business in a lower for longer oil price downturn, and $1bn of disposal proceeds continues to represent a substantial objective in a challenging asset market.

"We continue to see safer opportunities for long-term investors, and more leveraged opportunities for traders."