Tullow Oil has announced a significant liquidity headroom of $700m and a reduction in capital expenditure (capex) for 2020, reflecting its strategic adjustments in response to the volatile external environment. The company has successfully completed the bi-annual redetermination of its reserves-based lending (RBL) credit facility, securing a $1.9bn debt capacity approved by its lending syndicate. This financial maneuvering comes as Tullow aims to navigate through the challenging market conditions exacerbated by COVID-19 and the resultant oil price collapse.
Strategic Financial Adjustments
Amidst the current economic downturn, Tullow Oil has strategically revised its capex for the year 2020 to around $300m, a reduction from the previously estimated $350m. This adjustment is part of a broader initiative to identify further cost savings, with decommissioning expenditures also being scaled down to approximately $65 million from an initial $100m. The company attributes these savings to the deferral of various activities across its portfolio and efficiencies from ongoing farm-down activities. Notably, in Ghana, cost reductions will be achieved through the early termination of the Maersk Venturer rig and the postponement of certain well activities, alongside eliminating non-critical work that does not directly contribute to safety and asset reliability.
Robust Hedging Strategy and Production Stability
Tullow Oil’s proactive hedging strategy and stable production levels, which remain within the guidance of 70,000 to 80,000 barrels of oil per day, have positioned the company to maintain a free cash flow breakeven oil price of around $35 a barrel for the remainder of the year. This financial resilience is particularly crucial as the company’s production operations in West Africa have not yet been impacted by COVID-19. Chief Financial Officer Les Wood emphasized the importance of securing the ongoing support of RBL lending banks and confirming the company’s debt capacity, which, combined with further cost savings, underlines Tullow’s medium-term liquidity strength.
Future Outlook and Market Response
Despite the positive developments, Tullow Oil continues to prioritize strengthening its balance sheet, with an ambitious objective to raise proceeds in excess of $1 billion through portfolio management. The challenging asset market, however, poses significant hurdles to achieving this goal. Analysts at RBC Capital Markets have commented on Tullow’s aggressive response to the oil price collapse but also highlight the potential challenges ahead, particularly with ongoing RBL redeterminations and the endeavor to secure $1bn in disposal proceeds. The current situation presents a dichotomy of safer long-term investment opportunities versus more leveraged options for traders in a persistently volatile market.
Source: bnnbreaking.com