Tullow - comment

With leverage below 1.5x (expected to be 1.3x) the question of bond buybacks is rising with bondholders. The Company are obliged to buy back $100m of the Senior Secured Notes in May, but there are no other restrictions on the Company doing buybacks. We understand some bondholders are meeting with management to encourage SSN buybacks instead of the Subordinated bonds. Given the larger discount on the Sub bonds, management may favour the sub-bonds for buybacks.

Rumours are circling that the Company could do unto $500m buybacks with their cash balance c. $600m at December 2022. However, although we agree with some bond buybacks, we think the magnitude is too large. The Company still have the Ghanaian tax liability outstanding, and with a $400m of CAPEX planned in FY23, we suspect the Company will be more cautious. Guidance for FY23 is for the Company to have FCF after CAPEX c.$400m this year at $80/bbl ($500m at $100/bbl).