Tullow - comment

Tullow has lost its partners in Kenya. Africa Oil and Total Energies have withdrawn from Kenya to focus on other areas of exploration, namely West Africa. Tullow’s working interest changes to 100% for licenses in various blocks, including Block 10BB, 13T and 10BA in the Lokichar Basin. It does mean that any future JV on the project has the potential to be easier (with less partners) but it is hard to spin a positive angle on this news.

Total and Africa Oil have walked away from this option on these fields, implying very little equity value at the current time. There are repeated rumours that either Sinopec (Chinese energy Company) or a consortium of Indian oil players are interested in investing in Tullow’s Kenyan operations. There is no doubt that Chinese and Indian Companies are interested in East African assets, but it is a large leap to expect them to be the white knight for Tullow. We have always viewed the Kenya asset as a potential upside, post-2025, but not something bondholders should focus on in the near term. However, we had included the 2C contingent resources in Kenya as part of our sum of the parts.

Tullow is holding their AGM tomorrow and will release a trading update as part of the AGM. Note H1 iis the weaker half, with lower production expectations than H2, and coupled with the fact CAPEX and decommissioning expenditure are both front-loaded, cashflow will be weaker.