Here are my findings.
(P.S. All data got converted back to British Pounds.)
The company has been through a rough three-year patch that saw long-term shareholders lost all capital appreciation dating back to 2006!
Recently, Tullow Oil asked its shareholders to fork out $750m in a Rights Issue at a discount of £1.30/share.
Is this the turning point for Tullow and a change in fortune for its shareholders?
First, Tullow’s shares didn’t initially fall because of collapsing oil price. It fell because operating profits collapsed to £245m in 2013 from £700m, along with large capex spending in the future.
But declining oil price did exacerbate the shares lower by another 60% from £6-£7 per share.
To explain my answers in a concise and clear answer I want to dissect Tullow Oil into two sections:
1. Operational;
2. External.
Operational
(Period discussed is from 2006): -
A. Tullow Oil spends £9.6bn in finding the replacement of oil sold and building up its reserves.
That resulted in oil reserves & resources increasing by 686m to 1,193m. Given that Tullow sold 243m over this period, then the capital spend per barrel is £9.6bn ($14bn) divided by 929m = $15 per barrel.
The $15 per barrel capex doesn’t include the operational costs of extracting the oil on an annual basis. Add in operational costs per barrel, the cost of oil totals $71.9 per barrel in 2016.
B. Despite the big spend, sales volume of oil increased by 2,600 bopd, a 5% growth.
C. Despite years of producing oil, Tullow Oil has rarely generated positive free cash flow. In fact, it lost a total of £4.4bn. http://ift.tt/2pBfpZK (Data from Tullow Oil annual report)
D. Last year, oil production came to 71,700 bopd in 2016. A year ago, it gave a production for 2016 of between 78,000 to 87,000 bopd, a 10%-24% miss.
One big reason is down to its Jubilee field in Ghana. That oil field contributes around 26,000 bopd to Tullow Oil (or, around 35% of total oil production).
E. With this year oil production guidance of 88,000 bopd, it already downgraded this by 5,000 bopd.
F. As mentioned earlier, the level of total debt grew from £214m to £4bn, while sales doubled.
External Factors
Now, for the external factor, mainly the role of WTI/Brent Oil.
(Unless stated this period is from 2011)
The collapse in oil price has affected Tullow Oil business in the following ways:
A. Tullow generated sales of 25 pence for every pound it holds in assets. Now, it does 10 pence.
B. With capital turnover, Tullow is returning less than half of its investment.
C. Net cash earnings fell to £417m from a peak of £1.1bn.
D. Tullow, also written-off impairment charges totalling £5bn.
E. In 2016, half the oil was hedge at $75 per barrel, this enables the firm not to experience the full impact of adverse oil prices. Today, it can only get $60 per barrel for 45% of oil production.
For 2017
Reasons to be optimistic are: -
A. Capex spending cut to $500m this year, down from $900m last year.
B. Hopefully, it could achieve higher oil production of at least 80,000 bopd.
C. OPEC oil production cut to maintain oil prices.
Reasons to be pessimistic are: -
A. This year oil hedge is 20% lower than 2016, it puts pressure on margins.
B. U.S. oil production dampening price increase. http://ift.tt/2pAWDEB
C. Further operational production disruption possible.
D. The North Korean crisis looking likely as both sides won’t back down. That would dampen trade and economic activities.
E. New share outstanding of 1.38m values Tullow at £3bn. It would limit any gains in the share price.
(P.S. All data got converted back to British Pounds.)
The company has been through a rough three-year patch that saw long-term shareholders lost all capital appreciation dating back to 2006!
Recently, Tullow Oil asked its shareholders to fork out $750m in a Rights Issue at a discount of £1.30/share.
Is this the turning point for Tullow and a change in fortune for its shareholders?
First, Tullow’s shares didn’t initially fall because of collapsing oil price. It fell because operating profits collapsed to £245m in 2013 from £700m, along with large capex spending in the future.
But declining oil price did exacerbate the shares lower by another 60% from £6-£7 per share.
To explain my answers in a concise and clear answer I want to dissect Tullow Oil into two sections:
1. Operational;
2. External.
Operational
(Period discussed is from 2006): -
A. Tullow Oil spends £9.6bn in finding the replacement of oil sold and building up its reserves.
That resulted in oil reserves & resources increasing by 686m to 1,193m. Given that Tullow sold 243m over this period, then the capital spend per barrel is £9.6bn ($14bn) divided by 929m = $15 per barrel.
The $15 per barrel capex doesn’t include the operational costs of extracting the oil on an annual basis. Add in operational costs per barrel, the cost of oil totals $71.9 per barrel in 2016.
B. Despite the big spend, sales volume of oil increased by 2,600 bopd, a 5% growth.
C. Despite years of producing oil, Tullow Oil has rarely generated positive free cash flow. In fact, it lost a total of £4.4bn. http://ift.tt/2pBfpZK (Data from Tullow Oil annual report)
D. Last year, oil production came to 71,700 bopd in 2016. A year ago, it gave a production for 2016 of between 78,000 to 87,000 bopd, a 10%-24% miss.
One big reason is down to its Jubilee field in Ghana. That oil field contributes around 26,000 bopd to Tullow Oil (or, around 35% of total oil production).
E. With this year oil production guidance of 88,000 bopd, it already downgraded this by 5,000 bopd.
F. As mentioned earlier, the level of total debt grew from £214m to £4bn, while sales doubled.
External Factors
Now, for the external factor, mainly the role of WTI/Brent Oil.
(Unless stated this period is from 2011)
The collapse in oil price has affected Tullow Oil business in the following ways:
A. Tullow generated sales of 25 pence for every pound it holds in assets. Now, it does 10 pence.
B. With capital turnover, Tullow is returning less than half of its investment.
C. Net cash earnings fell to £417m from a peak of £1.1bn.
D. Tullow, also written-off impairment charges totalling £5bn.
E. In 2016, half the oil was hedge at $75 per barrel, this enables the firm not to experience the full impact of adverse oil prices. Today, it can only get $60 per barrel for 45% of oil production.
For 2017
Reasons to be optimistic are: -
A. Capex spending cut to $500m this year, down from $900m last year.
B. Hopefully, it could achieve higher oil production of at least 80,000 bopd.
C. OPEC oil production cut to maintain oil prices.
Reasons to be pessimistic are: -
A. This year oil hedge is 20% lower than 2016, it puts pressure on margins.
B. U.S. oil production dampening price increase. http://ift.tt/2pAWDEB
C. Further operational production disruption possible.
D. The North Korean crisis looking likely as both sides won’t back down. That would dampen trade and economic activities.
E. New share outstanding of 1.38m values Tullow at £3bn. It would limit any gains in the share price.
For those interested in Tullow Oil
Aucun commentaire:
Enregistrer un commentaire