Tullow Oil PLC (LSE:TLW) investors can expect more progress in 2023, even if they’re mostly distracted by the oiler’s steadily improving balance - that’s according to latest commentary from analysts at Barclays.
The Africa-focused group told the market in a statement yesterday that its cash flows for 2022 had exceeded expectations and said it would be reporting around US$1.75bn of revenue for the year when its financials are released, which will be on 8 March.
Last year’s lucrative trading (helped substantially by higher oil prices resulting from world events) follows a tumultuous time for Tullow in which key assets failed to meet forecasts and as tightening economics put the screws to what were debt-laden finances.
On Wednesday, however, Tullow said net debt had reduced around to US$1.9bn, from US$2.1bn at the end of 2021. Moreover, it told investors it now had around US$1.1bn of ‘liquidity headroom’.
With 2022 production in line with expectations to average 61,100 barrels of oil equivalent per day (boepd), the company anticipates its free cash flow for the year will amount to US$267mln, versus some US$1bn of underlying operating cash flow.
Looking to 2023, Tullow pitched its guidance at 58,000 to 64,000 boepd and said it would expect to generate some US$900mln of operating cash-flow.
The trading update was enough to reassure the market.
“Improved operating performance throughout last year enabled Tullow to deliver on its 2022 free cash flow (FCF) and deleveraging targets,” Barclays analyst James Hosie said in a note.
“Its outlook for 2023 is led by further production growth at Jubilee, including initial gas sales, alongside continued investment that can deliver greater free cash flows in 2024-25.
“Although Tullow’s balance sheet continues to dominate investor discussions, the company’s financial position has improved considerably.”
The analyst points to management expectations for a step-change in cash generation in the medium term, with US$700mln to US$800mln of free cash forecast per year in 2024 and 2025 as “he benefits of ongoing investments are fully realised.”
Hosie, meanwhile, noted other potential catalysts which may accelerate Tullows deleveraging, sooner.
“The [Tullow] update references the potential to retire/purchase debt in the open market,” he added, “Tullow ended 2022 with cash of US$0.6bn while its 2025 notes trade at around 65% of par.
“Market purchases could be another lever to accelerate deleveraging in 2023.”
Barclays has an ‘overweight’ rating for Tullow Oil and has a 62p per share price target, suggesting more than 60% upside to the current market price of around 34p.