ii view: Africa-focused Tullow Oil optimistic about 2024

Full-year results to 31 December

• Revenue down 8% to $1.63 billion
• Adjusted profit (EBITDAX) down 22% to $1.15 billion
• Net debt down 14% to $1.61 billion

Guidance:

• Expects 2024 production to average between 62 to 68 kboepd from 2023’s 62.7 kboepd
• Expects net debt to fall below $1.4 billion

Chief executive Rahul Dhir said: 

"In line with our strategy, we are continuing to focus relentlessly on operational excellence, capital efficiency and investments to drive growth. This strategy is delivering material cashflow generation and we are on track to deliver our target of c.$800 million free cash flow over the 2023 to 2025 period and optimise our capital structure.

"Tullow has a strong and unique foundation to create material value for our investors, host nations and stakeholders and we look to the future with confidence."

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ii round-up:

Africa focused Tullow Oil (LSE:TLW) today detailed expectations of increased production during 2024 as it reported reduced adjusted profits given lower average oil prices. 

Helped by the 2023 start-up of its Jubilee South East project in Ghana, year ahead 2024 production is expected to rise to average between 62 and 68 thousand barrels of oil equivalent per day (kboepd), up from 2023’s 62.7 kboepd. A 12 % fall in the average realised oil price over 2023 cut revenues by 8% to $1.63 billion, taking adjusted profit excluding exploration costs, (EBITDAX), down by just over a fifth to $1.15 billion.

Shares fell marginally in post results trading having come into this latest news down by close to a fifth over the last year. That’s similar to rival Energean (LSE:ENOG) and worse than a 6% fall for oil major Shell (LSE:SHEL). The Small Cap index itself is down 3% over the last year.

Tullow has interests in over 30 exploration and production licences across seven countries, including Ghana where it operates the Jubilee and TEN fields, and in Kenya. 

Free cash flow during 2023 of $170 million and ahead of management’s prior guidance helped group net debt fall 14% year-over-year to $1.61 billion. Tullow finances during the year were aided by a new $400 million five-year debt facility with miner and Glencore (LSE:GLEN). 

Expected free cash flow for the 2024 year ahead of between $200 to $300 million at an estimated oil price of $80 per barrel is expected to further reduce net debt to below $1.4 billion as of the year-end. 

An overall annual 2023 loss of $110 million, hindered by write-offs and impairments of $435 million, contrasted with a 2022 pre-tax profit of $49 million.    

ii view:

Started in and named after the town of Tullow in the Republic of Ireland in the mid-1980s, Tullow shares are today listed on the London and Ghanaian stock exchanges. Employing over 300 people, a previously announced merger with Capricorn Energy (LSE:CNE) was eventually scrapped as Capricorn found an alternative partner.   

For investors, net debt of $1.61 billion (£1.27 billion) compares to a stock market value of around £400 million.  In early 2019, Tullow had interests in over 85 exploration and production licences, which is now down to nearer 30. Concerns for a global economic growth, particularly in China, continue to overshadow potential future oil demand and therefore its price, while fossil fuel use remains under the spotlight given long term climate change concerns.

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On the upside, a focus on operational and capital efficiency along with business growth has aided cashflows, reducing net debt. The start-up of its Ghana Jubilee South East operations is expected to aid production for the year ahead, a financing deal with Glencore suggests some financing flexibility, while its South American Guyana business was sold during 2023 given increased focus on its core African business. 

For now, an ongoing reduction in net debt and an analyst consensus estimate of fair value at over 50p per share offers grounds for longer-term hope. That said, a return to an annual loss raises caution, with the shares remaining speculative. More cautious investors might prefer to wait for further progress on debt reduction.

Positives: 

• Cash flow generation plan on target
• Previously reinstated its oil price hedging policy

Negatives:

• High political instability in Africa
• Fossil fuels negatively linked to climate change

The average rating of stock market analysts:

Buy