Tullow - AGM, Reflection of past year and update to future

All,

Please find our unchanged analysis here.

As a consequence of current times, Tullow’s AGM will be held today virtually. The Company released the AGM statement this morning outlining the progress of the Company over the last year. As we have previously stated, Tullow’s refinancing has removed the uncertainty in relation to its finances and given the Company an ability to invest in its future. With financial security for the next couple of years secured, focus will turn to cash flow (hedging), drilling success and ultimately production levels.

Hedging:
As conditions of the new $1.8bn bond, the Company are committed to hedging 75% of expected production for following 24 months, and 50% for the subsequent 12 months. The Company are 60% through the hedging obligation, and including previous hedges, have weighted average collars of $51-58/bbl, and expect to fully complete their hedging obligation by year-end.

Drilling:
The drilling update is very upbeat with the first Jubilee Production well and water injector well both successfully drilled, and over the remainder of this month they will be tied back and start-up of both wells expected in Q3 2021. This is earlier than expected, and given the reservoirs encountered were in line with expectation, bodes well for future production.

Production:
In line with Company guidance and ahead of our expectation, the Company confirmed c.62,000 boepd for the first five months. With the success of the drilling program and the potential for earlier than expected production from the new wells, the risks on production levels are on the upside. Additionally, the 98% uptime and the higher reliable gas off-take continues to give comfort on the production performance in Ghana.

Positioning:
The above points underpin the value of Tullow to both the bondholders and equity value. We remain long the equity and the 2025 bonds. We still see value in the 2025 bonds and view the 2.5-3% yield differential between the 2025 sub bonds and 2026 senior bonds to be too wide.

Happy to discuss,

Tomás

_______________________
E: tmannion@sarria.co.uk
T: +44 203 744 7009
www.sarria.co.uk