Tullow Oil PLC (LSE:TLW) shares advanced on Monday as the company to up an option to expand its business in Ghana, by acquiring the interests of its partner
It marks a more expansive approach for Tullow which, at lower crude oil pricing, had been more defensively prioritising production, cashflow and debt repayment.
Paying US$118mln in cash the company is acquiring Occidental Petroleum's interests in the Jubilee and TEN fields, effectively increasing its stake in those fields to 38.9% and 54.8% respectively. In terms of production, it adds around 5,000 barrels of unhedged oil per day to the production profile.
Tullow has increased its production guidance for 2022 up to 59,000 to 65,000 barrels of oil per day – which is 30,000 to 32,000 bopd for Jubilee, 13,000 to 14,000 for TEN, and the non-operated portfolio will be 16,000 to 19,000 barrels.
“This transaction underscores our confidence in the assets and meets our objectives of value accretion and deleveraging," said Rahul Dhir, Tullow chief executive.
As a result of the deal, capex for the year rises to US$30mln to US$380mln and at the same time it expects US$300mln of incremental free cash flow (based on an oil price of US$75 in the period between 2022 to 2026).
Tullow’s net proved and probable (2P) reserves increased by 21mln barrels, adding US$355mln of net present value (at US$75mln per barrel).
Laura Hoy, analyst at Hargreaves Lansdown, in a note, said: “With its finances largely under control, Tullow’s finally able to make some strategic moves. Hopefully this is the first of many.
“But the fact remains that Tullow is behind the curve compared to peers, who are using current conditions to shore up clean energy operations.
“Tullow risks being stuck clawing its way back to profitability while the rest of the industry marches ahead.”