Tullow Oil has secured its reserve-based lending (RBL) facility at $1.9 billion, giving it around $700 million of liquidity, while slashing its spending this year further from plans announced just two weeks ago.
The company said this was considered to be acceptable given its much reduced capital spending plans. The size of Tullow’s debt was voluntarily reduced from $2.4bn to $2.2bn. This reduces financing costs and accelerates the amortisation process.
The first scheduled amortisation commitment is October this year, with the next in April 2021. Final maturity is due in 2024.
The next financing hurdle will be a $300mn convertible bond, which is coming in July 2021.
“Securing the ongoing support of our RBL lending banks and confirming our debt capacity has been important given the current challenging environment. Today’s positive news verifies the strength of our producing assets and robust hedging strategy, which underpin the RBL and, combined with the further cost savings we have identified, confirms the strength of our liquidity in the medium-term,” said Tullow’s CFO Les Wood.
“Nevertheless, strengthening the balance sheet continues to be a key priority with the group seeking to raise proceeds in excess of $1 billion through portfolio management.”
In mid-March the company said it planned capex for the year at around $350mn but has cut this further and is now targeting $300mn. Decommissioning spending has also been reduced, from $100mn to $65mn.
Work has been deferred in Ghana, for instance with the early termination of its drilling rig the Maersk Venturer.
However, Tullow’s board has approved the next phase of the Simba development in Gabon. This should begin paying back investment before the end of 2021 at $30 per barrel. The company reported in 2019 that the Simba field was exceeding expectations.
Underlying costs are less than $12 per barrel and Ghana operating costs are around $9. Given production of 70,000-80,000 bpd this year, Tullow should generate free cash flow at $35 per barrel for the rest of the year.
As oil prices fell, Tullow’s hedging is paying off. Of sales this year, 60% is hedged at $57 per barrel, while 40% of 2021 volumes are hedged at $53. As such, the company expects to earn around $30mn from hedging in March.