Tullow - comment

Tullow management came back to us this morning to confirm a couple of outstanding points (just after we published our updated analysis yesterday). As expected, the purchase price of the pre-emption rights will be adjusted for the cash generation of the stake between the economic effective date of 1st April 2021 and the completion date, yet to be determined. Tullow is effectively the owner of the stake from April 2021, so are benefitting from the additional production with no hedges. Note, it is also responsible for the stake’s share of CAPEX spending since last April. We have not adjusted the price in our model and have assumed closure on 30th June 22.

Separately, we discussed the underlift that occurred in H2 21 (where the wells produced more oil than was sold - 79% was sold). Management confirmed this will lead to an overlift in H1 22, which will boost revenues for H2. This is as expected, but again we don’t see the need to adjust our model, as some of the gains will sit in the inventory line as of Dec 31st. Finally, management confirmed that there is no need to hedge the additional production acquired under the pre-emption rights, confirming our view that Tullow has 45% exposure to oil prices above $55/bbl for FY22.