Tullow Oil - Something for everyone

All,

We will update our model post the call at 9am.

Tullow is a company in transition and coupled with the fact that Ghanian Authority had already reported production figures through to July), historic numbers are broadly irrelevant. The emphasis will remain on the success of the drilling program (so far so good) and future drilling program (no details given). Equity investors will focus on the Kenyan option, and the current commentary on the project is positive so far.

Future Production:

- Tullow has narrowed its guidance for FY21 production to 58-61k, the top end of its previous guidance, which adjusted for the sale of the Equatorial Guinea assets, was 55-61k boepd as recently as July. Guidance is narrowed, because of a postponement of a Jubilee shut down into FY 22, accounting for an additional c.900 boepd and an increase in production from Simba in Gabon for an additional and 300 boepd. The remainder will come from removal of contingencies and better operational figures.

- As previously announced, the 2021 drilling program at Jubilee will increase production for H2 2021 and grow further in 2022. The second well, which was drilled earlier in the year, is expected to come online in the next couple of weeks. Moreover, the final well of the FY21 program is expected to come online in early 2022.

- At TEN, which has experienced faster decline than we expected, Tullow are currently drilling its sole planned incremental well, aiming for completion in October. This should keep production static into FY22. Tullow have reduced their guidance for TEN from 16k boepd to 15.3k boepd - in line with our August analysis.

Kenya:

- Tullow have a 50% interest along with its JV partners (Africa Oil and Total). The project is still in the pre-production phase, but the update included in the H1 numbers is more promising.

- The overall project has increased with a gross capex to First Oil now expected to be $3.4bn (50% share for Tullow). This is larger than initial guidance, but for positive reasons. Tullow are planing to increase the pipeline’s diameter to 20” (from 18”) to handle higher flow rates.

- Additionally, the higher CAPEX envelope allows greater flexibility in adding further fields into production without significant modifications. The project now envisages adding the production from a further field already in the first phase of development.

- The next step is for the three JV partners (Tullow, Africa Oil and Total) to submit to the government of Kenya a final Field Development Plan (FDP) by the end of 2021, in line with the license extension. At the same time, Tullow will be seeking a strategic partner to fund the project, possibly in return for a share of its stake and it intends to conclude a transaction (partial sale) prior to "Final Investment Decision”, likely FY22.

Hedging:

- 40,000 boepd or c. 2/3rds of production are hedged for H221, with a floor of $48.17 and a sold call at $66.63. For FY22, FY23 and FY24 Tullow has hedged 23,400 boepd, 20,000 boepd and 6,800 boepd of production with floor price of $48//bbl, $55/bbl and$55/bbl respectively.

Questions outstanding:

- TEN production figures - Although the production figures are expected to stabilise after the drilling of the well in October 2021, the decline is faster than we and the Company expected at the beginning of the year. Is there any other specific reason for it and does the Company have plans to drill further in FY22.

- Tullow’s success or otherwise depends on its future drilling program. When will they release any guidance for FY22 drilling?

- Kenya - Is Tullow likely to achieve a farm down of its interest prior to FDP?

Positioning:

- We maintain our 3% long position in the 2025 bonds and there is nothing in the current update that changes the base case in Tullow. We also have a 5% equity position at 52p and would expect the positive noises about the Kenyan operations to drive equity value over the coming weeks. We will be assessing our long-term expectations for the equity position in time.

Happy to discuss.

Tomás

E: tmannion@sarria.co.uk

T: +44 20 3744 7009

M:+44 7786 705 806