Tullow Oil (TLW) has had a big week, first hiring a new chief executive and then announcing it had worked out a new deal to sell its Uganda holdings to Total (Fr:FN) for $575m (£465m).
The Uganda deal comes after Tullow’s previous arrangement to hand Total its one-third holding of the gas project for $900m lapsed last year when the government would not sign off based on the linked tax arrangement. This new deal still has to be signed off by officials in the country, but the company said it had agreed the principles of the deal with the state. Plus, Total will be covering the tax on the transaction.
This goes a long way to reaching the $1bn in planned asset sales to keep the company above water by cutting net debt from the $2.8bn as of 31 December.
The Uganda sale failure was one setback for Tullow last year, on top of the disappointing oil quality at its Guyana prospects and poor production in Ghana The bad run saw the chief executive and exploration boss depart in December, with chairman Dorothy Thompson covering the job since then. She said at the company’s virtual AGM Tullow would be “a different company” by the time the asset sales are done.
Panmure Gordon analyst Colin Smith noted the carrying value for the Uganda holding was $992m, but said Tullow had got a “fair price” for its stake in the project.
The new boss, Rahul Dhir, currently runs private Africa-focused oil and gas company Delonex Energy. He starts on 1 July. While improvement in the oil price is possible by then, Mr Dhir will still be facing a tough job. Tullow's cash flow breakeven point was $35 per barrel (bbl), well above the current Brent spot price. But the company has some room to breathe because 60 per cent of its 2020 production is hedged at $57/bbl.
Tullow’s share price climbed 60 per cent on the Uganda news to 32p before falling back to 23p. It is down 62 per cent year-to-date.
