Tullow Oil profits down as it chips away at debt mountain

Putting your bond prices in the full-year presentation would normally ring alarm bells, but West African oil producer Tullow Oil (TLW) can fairly boast it has gone from below 60ȼ (47p) on the dollar to over 90ȼ in the past nine months. This comes as management was able to push back a serious payment deadline through new borrowing from Glencore (GLEN). The actual performance of the company can be measured in the free cash flow generated of $170mn. This was down $100mn on 2022 due to lower oil prices and higher costs. But net debt was also lowered by an $86mn gain on three bond buybacks. 

Net debt now amounts to $1.6bn, down from $1.9bn. The company can’t just throw all its cash into clearing the debt as its operations are hungry for it as well, with capital spending at $380mn. Net financing costs were $286mn as well, including $237mn on interest payments.  

Capex is guided at $250mn for 2024, freeing up some more spending options, although chief executive Rahul Dhir said the energy company mainstays of dividends and deals would have to wait until 2026 on the current trajectory. He said a deal could be done sooner if it allowed deleveraging to continue, but the company will still be holding $1.2bn in gross debt in two years as per current forecasts. 

Production for the period was 62,700 barrels of oil equivalent per day (boepd), climbing slightly on last year due to the new Jubilee South East field, although some early “water injection reliability challenges” kept a lid on the increase. Tullow said these were fixed in the fourth quarter. The company has guided for 62,000-68,000boepd in production this year. The debt levels remain an anchor for this company. Hold. 

Last IC View: Hold, 35p, 13 Sep 2023