Tullow Oil Plc – Unveiled decent production capabilities

Tullow Oil PLC (LON: TLW) is FTSE All-Share listed Oil & Gas Exploration Company, which manages production and development activities across Africa, South America, Europe, and Kenya.

On 9 September 2020, the Company will release the 2020 half-year results.

Trading and Operational Update (as on 29 July 2020)

The Company issued this update to summarise recent operational activities and to provide trading guidance in respect to H1 FY20. The Group’s working interest production for the first half of 2020 averaged 77,700 barrels of oil a day (bopd), meeting the Company’s expectations. In the first half of 2020, gross TEN production averaged 50,900 bopd (net: 24,000 bopd), net production from the non-operated portfolio was 23,700 bopd, and gross Jubilee production averaged 84,700 bopd (net: 30,000 bopd). During the first half of 2020, the Group witnessed a strong performance in Ghana operational, with uptime on both FPSOs in excess of 95%.

Regarding the financial, the revenue is expected to be approximately US$0.7 billion in H1 FY20, with a realised oil price of US$52 per bbl (including hedge receipts of US$131 million). On 30 June 2020, the liquidity headroom and free cash are expected to be approximately US$0.5 billion, and net debt is expected to be around US$3.0 billion.

According to the Uganda Transaction Update, the Group’s sale of Ugandan assets to France Total SA is still underway, awaiting tax agreements from the Ugandan government and Revenue Authority. The Group expects to secure a total payment of US$500 million on deal completion and US$75 million at the final investment decision.

Share Price Performance


1-Year Chart as of 11 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Tullow Oil Plc’s shares were trading at GBX 26.69 on 11 August 2020 (before the market close at 9:11 AM GMT+1), up by 1.91% against the last day closing price. Stock 52 week High and Low were GBX 251.31 and GBX 7.17, respectively.
From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

Tullow remains exposed to the impact on the balance sheet, and revenue due to oil price volatility, unexpected costs arising from an inability to refinance. The production in Kenya has also been suspended due to Covid-19 pandemic. The rising COVID-19 cases and U.S.-China tensions may also impact the growth trajectory in the near term.

Conclusion

Full-year guidance has been narrowed to 71,000-78,000 bopd in the Group working interest production. The Group will take an impairment of up to US$1.7 billion amid a slump in oil prices. The Company currently has 60% of the 2020 sales revenue hedged at a floor of US$57 per barrel for 2020 and 44% hedged for 2021 with a US$51 per barrel floor. Despite the challenging environment in H1 FY20, the Group seems to be well-positioned, with delivering production in line with forecast, re-shaping the Group's structure & cost base, and agreeing on the sale of the Ugandan assets. In the second half of 2020, the Company’s focus is to deliver safe and reliable production from West Africa. Overall, the Group has made substantial changes to the cost base.


(Source: Company Website)

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current market price of GBX 26.69 (as on 11 August 2020, before the market close at 9:11 AM GMT+1) and will recommend fresh buying at the right time.

Pharos Energy Plc – Got Extension for the TGT Field Licence

Pharos Energy PLC (LON: PHAR) is a FTSE All-Share listed independent Oil & Gas exploration and production Company. It has exploration, production, and development interests in the region of Egypt, Israel, and Vietnam.

 On 26 August 2020, the Company will announce the interim results for the six months ended 30 June 2020.

Recent News

On 4 August 2020, the Group stated that Vietnam’s Ministry of Industry & Trade had granted a two-year extension to the Te Giac Trang field license. The license now runs to 7 December 2026, as the first stage of the full five-year licence extension. The Company stays confident in securing a license extension of a further three years to 2029. This will be pursued in due course in accordance with the licence terms.

Trading and Operational Update (as on 9 July 2020)

Group working interest production in the first half of 2020 averaged 12,093 boepd, in line with expectations. For the first half of 2020, the Group’s revenue stood at approximately US$77 million, including the benefits of the H1 hedges of US21 million. In light of COVID-19, the production operations continue in both Vietnam and Egypt, with strict health and safety measures in place. After RBL repayment of US$22.3 million on 30 June 2020, the cash balances as at 30 June 2020 stood at approximately US$38 million with net debt of around US$36 million (2019: cash of US$58.5 million and net debt of US$41.5 million). Led by reductions in Egypt, the cash capital expenditure has reduced to approximately US$37 million in 2020, from US$44 million (as announced on 12 May 2020).

Share Price Performance


1-Year Chart as of 11 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Pharos Energy Plc’s shares were trading at GBX 14.72 on 11 August 2020 (before the market close at 9:15 AM GMT+1), down by 1.87% against the last day closing price. Stock 52 week High and Low were GBX 69.00 and GBX 10.00, respectively.

From the technical standpoint, the shares were trading below the short-term support level of 50-day simple moving average prices, which reflects a downward trend in the stock.

Key Risks

Any failure to generate substantial free cash flow can affect the business prospects of the Company. Besides the liquidity risk, the Company operations are subject to regulatory and environmental risk. The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.

Valuation Methodology



Conclusion

For 2020, the operating cash flows in Vietnam expects to be around US$61 million, which includes approximately US$26 million hedging benefits. While for Egypt, the operating cash flow forecast is expected to be broadly neutral. The Group expects to continue navigating the rest of the year 2020 in a positive way. It has adopted several cost-cutting measures and postponed the dividend payment (until the crisis gets subside). For the medium to long term, the Group is positioning to survive in the low oil price environment for the benefit of all the stakeholders.

Based on the above rationale, we have given a “Watch” recommendation at the current market price of GBX 14.72 (as on 11 August 2020, before the market close at 9:15 AM GMT+1), while we have to look how the enhanced oil recovery unfold in the near term.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

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