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Tullow Oil: Elevated prices pays for £90m investment by year-end

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Tullow Oil has predicted that the acquisition of two stakes in offshore oilfields could pay for itself by year-end because of high oil prices.

The energy exploration firm spent £89.7million purchasing Occidental Petroleum’s interests in Ghana’s Jubilee and TEN fields, thereby increasing its holding within the two developments to 39 per cent and 54 per cent, respectively.

Should oil prices remain at current levels, around $98 per Brent Crude barrel as of Wednesday, the London-listed group believes it could pay for the price of the acquisition by the tip of the yr.

Acquisition: Energy exploration firm Tullow Oil spent £89.7million purchasing Occidental Petroleum’s interests in Ghana’s offshore Jubilee and TEN fields earlier this yr

Alongside this, the business has maintained its yearly production forecast at 59-65,000 barrels of oil equivalent per day (kboepd), having churned out 60.9 kboepd in the course of the first half of 2022.

Production at its Jubilee field was consistent with expectations, an achievement that Tullow attributed to a few latest wells being brought onstream, as was output at its non-operated portfolio in Gabon and Ivory Coast.

The corporate also continues to expect annual free money flow of around $380million, with about $30million originating from the additional stake it acquired in Ghana,

As well as, it expects to earn a free money flow of about $200 million, assuming a median oil price of $95 per barrel – much higher than it has been in recent times.

Crude oil prices tumbled within the early stages of the Covid-19 pandemic after stiff travel restrictions introduced by governments the world over and factory closures severely dampened demand for petroleum.

This caused massive financial turmoil for Tullow, which fell to a $1.3billion first-half loss in 2020 because it wrote off greater than $900million in exploration assets and incurred enormous impairment costs.

Tie-up: Tullow Oil agreed to a £1.4billion merger with Capricorn Energy earlier this year in a deal that would give its shareholders a 53 per cent stake in the newly-enlarged group

Tie-up: Tullow Oil agreed to a £1.4billion merger with Capricorn Energy earlier this yr in a deal that might give its shareholders a 53 per cent stake within the newly-enlarged group

Yet, following the loosening of lockdown laws and the successful rollout of Covid-19 vaccination programmes, oil prices began a powerful recovery, resulting in a turnaround within the firm’s financial performance.

Thanks moreover to much lower impairment charges related to property, plant and equipment, Tullow rebounded to a post-tax lack of $81million last yr, in comparison with $1.2billion within the previous 12 months.

Its chief executive Rahul Dhir remarked today: ‘It is 2 years since I joined Tullow, and today, we’re in a really different place. A relentless deal with costs, capital discipline and operating performance, is ensuring delivery of our marketing strategy.’

As a part of this plan, the corporate has agreed to a £1.4billion merger with gas-focused Capricorn Energy, with Tullow shareholders set to carry a 53 per cent stake within the newly-enlarged group.

Dhir said his firm was preparing a circular and prospectus for shareholders that is about to turn out to be available within the fourth quarter, which is then expected to be followed by a vote on the proposed merger later within the yr.

The boards of each businesses have really useful that investors approve the deal, yet one outstanding shareholder, Legal & General Investment Management, has voiced very strong objections on economic and environmental grounds.

Last month, the asset manager claimed there was ‘no clear strategic rationale’ for the transaction, adding that it might worsen Capricorn’s exposure to grease and be unlikely to lead to major cost savings.

Allegra Dawes, a senior analyst at global consultancy Third Bridge, also suggested uncertainty over future oil prices and lack of similarities between the 2 exploration firms as potential problems with the deal.

She said: ‘Capricorn’s partnership with Shell in Western Desert onshore gas is a really different business to Tullow Oil’s deep offshore in Ghana. Capricorn has a really gas-heavy portfolio, and Tullow is oil-heavy.

‘The merger buys Tullow more time to deal with its debt pile because Capricorn is a cash-flow-rich business. Nevertheless, the present high oil price may not help as much as one might think due to the hedges put in place on the time of refinancing in 2021.’

Tullow Oil shares closed trading 2.8 per cent lower at 42.6p on Wednesday, meaning their value has declined by greater than 19 per cent previously six months.

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