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PREVIEW: Will there be news of remedies or deals from Tullow?

Last updated: 01:30 30 Jun 2016 EDT, First published: 11:30 29 Jun 2016 EDT

tullow offshore operations

City broker Numis highlights that Tullow’s valuation is “extremely leveraged” to long term oil price assumptions because of its high level of debt, and that longer term crude forecasts above US$71 per barrel are necessary to see upside to the E&P stock.

Alternatively asset sales could provide catalysts, though Numis doubts other oil companies are currently willing to acquire assets from Tullow.

A cash injection from a farm-out in Kenya is, however, possible given that Tullow’s partner Africa oil partially cashed out with a big money a few months back.

Thomas Martin, analyst at Numis, noted that any news of a farm out would “be of great interest”.

“Our estimates incorporate a farmout of half of Tullow’s interest in Kenya on similar terms to those agreed by its partner Africa Oil in late 2015 (we model US$367m back costs plus a carry of US$274m carry for an 800mmbbls development),” he said.

In terms of operational updates investors keenly await news of remedial plans at the Jubilee field, which has been hampered by equipment problems aboard a floating production facility.

Tullow has said it has insurance cover for repairs and production interruption, but, investors will want to know about the timetable for the insurance payouts and the plans to get operations back to optimal levels.

“Our forecasts incorporate group production of 76.1mboe/d (6.0mboe/d for Europe and 70.1mboe/d for W Africa), incorporating the estimated impact of Jubilee production interruptions to date giving Jubilee production of 26.9mboe/d net (83mboe/d gross),” Martin said.

“We would not expect production to actually average 76.1mboe/d in 2016, assuming a further shutdown is required at Jubilee in H2 ’16, however cash generation should remain in-line with our expectations owing to the insurance.”

TEN, Tullow’s new oil field development, meanwhile, will be another key focus.

First production scheduled for July/August and it is planned that it will deliver 11,000 barrels of oil per day net to Tullow by the end of the year.

Numis rates Tullow as a ‘sell’.

Other trading announcements:

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