- Oil group completes $575m Uganda sale
- New chief executive says existing assets can help Tullow cut debt
Tullow Oil (TLW) has outlined a 10-year plan to dial back expansion plans and focus on existing assets. The oil and gas producer will also slow down its divestment plan after the $575m (£431m) sale of its Uganda assets, scrapping a previous plan for $1bn-worth of disposals.
New chief executive Rahul Dhir said the new strategy would aim to keep debt in check and stabilise returns. “The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations and deliver material value for our host nations and investors,” he said.
Tullow has forecast an oil price of $45 per barrel (bbl) for another year and then $55/bbl from 2022 onwards. Against these assumptions, the company says it can generate around $7bn in operating cash flow out to 2030, with capital spending at around $2.7bn in that period.
Panmure Gordon analyst Colin Smith said the decision to keep capex at that level makes it unlikely much “surplus cash flow” will be generated beyond what is needed to reduce the $4.2bn net debt pile.
Mr Dhir’s plan is to get the ratio of net debt to Ebitdax (earnings before interest, tax, depreciation, amortisation and exploration costs) to 1-2 times. At interim results, the multiple stood at 3.
Tullow’s share price fell 7 per cent on the strategy update, to 31.6p, and is now down 47 per cent year-to-date.
The company is in a better position now the Uganda sale is done, but we don’t see a reason to buy in now. Sell.
Last IC View: Sell, 16.6p, 9 Sept 2020
