Tullow Oil Plc's (LSE:TLW) Jubilee field’s production rate of 100,000 barrels of oil per day is “not a forgone conclusion”, that’s according to Jefferies, which in a note pointed out that the firm’s Jubilee field has only ever managed that feat twice (in 2014 and 2015).
Jefferies today downgraded its rating on Tullow to ‘underperform’ from ‘hold’, and, cut its price target to 25p from 40p.
Jubilee reaching 100,000 bopd is dependent upon a programme of five new wells due to come online this year.
“Even if TLW does produce to such levels- and we are inline to TLW's 2023 group production guidance of 58,000 to 64,000 boe/d - we estimate the company's cash breakeven as one of the highest in the sector,” Jefferies analysts said in a note.
Free cashflow guidance is pitched at US$200mln based on US$100 oil which would drop to US$100mln at US$80, the broker noted, meanwhile, it also notes that Tullow is involved in a US$707mln tax dispute with Ghana which could take years to resolve through arbitration.
“In valuation terms, we apply only core net asset value (NAV), and we lower our EV/EBITDA multiple by 0.75x to 1.75x to reflect a level more on par with UK North sea peers, for whom, even with EPL [windfall tax] offset, experience more material free cashflow & deleveraging.”
In London, Tullow shares were trading down 1.24p or 3.8% on Wednesday changing hands at 31.12p each.