Tullow - Of $s and Wishing Wells - Positioning

All,

Please find our Tullow model here.

Although the pricing of the new Senior Secured bond is wider than we expected, the $1.8bn deal removes liquidity and cashflow concerns for Tullow in the FY21-FY24 period. Following the new bond issuance, we are been taken out of our 2% long position of the 2022 Notes at par (purchase in January at 85%).

Positioning:

The deal takes us out of our 22s, but we are maintaining our 3% position in the 2025 bonds (70% in January) and our long 4% equity position (52p in March) as both should benefit from the refinancing and optionality in the coming periods.

It’s all about those wells now:
The pricing of 10.25% was wider than we expected for the New Senior Secured Notes. We expected pricing c.9% for the new bonds, with the 2025 trading 150bps back. With no upcoming maturities/amortisation over the coming years, focus will now be on the drilling program, the level of increased production from new wells balanced with the decay on existing wells. With the hedging requirement of 75% for 2yrs, oil price sensitivity will be reduced and production levels will be the main concern.

We will update our model and legal analysis once the final bond documentation is released - there were some late changes to covenants.

Happy to discuss.


Tomás
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E: tmannion@sarria.co.uk
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www.sarria.co.uk