Tullow Oil (LON:TLW)
Tullow Oil (TLW) has reported its half year results for the six months ended 30 June 2017 broadly in line with consensus, with its key financials highlighted below.
• Revenue of US$0.8bn. Gross profit of US$0.3bn. Free cash flow of US$0.21bn. Loss before tax of US$0.5bn after impairments.
• Net debt reduced by just short of US$1 billion YoY to US$3.8bn following the generation of free cash flow and US$750m Rights Issue in April 2017. Facility headroom and free cash is now US$1.2bn.
• 2017 Capex guidance reduced from US$0.5bn to US$0.4bn and this is anticipated to reduce to US$0.3bn on completion of the Uganda farm-down.
Operationally TLW performed in line with expectations with West Africa net working interest oil production, including production-equivalent insurance payments, averaged 81.4kbopd in H2 2017. Full year guidance of 78-85kbopd remains unchanged. The Kenya exploration and appraisal programme continues with a further three wells planned in H2 2017 whilst working towards FID.
Further to this, TLW has made progress across its exploration portfolio, which in our opinion will be the key driver for the stock going forward. It remains on track to drill the high impact Araku-1 well in Suriname in Q4 2017 and has also completed or commenced seven seismic campaigns so far this year. This includes a seismic programme in Guyana which commenced in May and will be used to define prospects for drilling on the Kanuku licence in 2018/19.
We are particularly excited by TLW’s exploration acreage in South America, particularly in Guyana which is directly updip of the giant Liza and Payara discoveries made by ExxonMobil (XOM). The progress made by TLW in these basins will also be positive for TLW’s partners across its licences, including Eco (Atlantic) Oil & Gas (ECO)#, which has a 40% working interest in the TLW operated Orinduik Block in Guyana. TLW estimates this block contains prospective resources of 900mmboe. We have a BUY recommendation and 25p TP on ECO.