Tullow identifies further cost savings as lenders approve credit

Oil and gas company Tullow Oil has identified further cost savings while its lenders have approved its credit facility with a $1.9 billion of debt capacity.

Tullow said on Friday that the company continues to adapt to the challenging external environment.

Les Wood, Chief Financial Officer, commented: “Securing the ongoing support of our RBL lending banks and confirming our debt capacity has been important given the current challenging environment. Today’s positive news verifies the strength of our producing assets and robust hedging strategy which underpin the RBL and, combined with the further cost savings we have identified, confirms the strength of our liquidity in the medium-term.

“Nevertheless, strengthening the balance sheet continues to be a key priority with the group seeking to raise proceeds in excess of $1 billion through portfolio management.

Tullow confirmed that it has completed the bi-annual redetermination of its RBL credit facility with $1.9 billion of debt capacity approved by the lending syndicate.

As a result, the group has c.$700 million liquidity headroom of undrawn facilities and free cash at the start of the second quarter of the year.

Tullow has voluntarily reduced facility commitments from $2.4 billion to c.$2.2 billion, effectively accelerating the first scheduled commitment amortization from October 2020. The reduction in debt capacity and commitments will result in a reduction of finance costs.

The next scheduled amortization of $211 million (commitment reduction, not repayment) will, therefore, be in April 2021. This amortization schedule continues every six months until final maturity in 2024. The next contractual maturity in Tullow’s capital structure is the $300 million Convertible Bond in July 2021.

Tullow said in mid-March it took actions to reduce its planned capital expenditure (capex) for 2020 by c.30% year-on-year.

Following another review of planned activity, the business has identified further savings and is now targeting capex of c.$300 million in 2020 (down from c.$350 million) and decommissioning expenditure of c.$65 million (down from c.$100 million).

According to the company, savings have been identified primarily through the deferral of activities across the portfolio and through savings that can be realized by ongoing farm-down activities.

In Ghana, for example, savings will be made through the early termination of the Maersk Venturer rig and the deferral of some well activity, combined with the removal of any non-critical work that does not focus on safety and asset reliability.

While the focus has been on further capex reductions, Tullow continues to invest in projects yielding good returns and the board has agreed to progress the next phase of the Simba development in Gabon which will pay back before the end of 2021 at $30/bbl.

The group’s underlying operating costs remain less than $12/bbl, with Ghana operating costs at c.$9/bbl. With the benefit of the group’s hedging policy and production remaining on track within the group’s 70-80 kbopd guidance range, this results in a free cash flow breakeven oil price of c.$35/bbl for the rest of the year.

With regard to the coronavirus pandemic, Tullow said that the people from its principal offices are currently working from home.

Production operations in West Africa have not been affected by COVID-19 as yet. In addition to the existing Infectious Disease mitigation plans already in place, Tullow is requiring all personnel to self-isolate in Ghana for two weeks before transferring to our FPSOs to ensure that the risk of a COVID-19 outbreak offshore is minimised.

In the event that a case of COVID-19 is discovered offshore, mitigation and personnel evacuation plans are in place to ensure that the impact of any outbreak is minimized and operations are maintained.