Tullow Oil expects an average oil price of $45/barrel (Brent) in 2021 and $55/ barrel (Brent) in 2022 and beyond as the firm works to reduce its heavy debt, generate impressive cash flows over the 2020s that will enable it to generate significant shareholder rewards, if it can get over its current hurdles.
Tullow Oil has seen its share price drop nearly 90 percent in the past year on the back of Covid-19 and the collapse of oil prices. The collapse puts the highly leveraged oil producer in a tough spot.
The company, which has a massive $2.4 billion in net debt, expects $7 billion in operating cash flow. From there it expects $4 billion in cash flow available for debt service and shareholder returns with significant upside. Tullow’s most significant assets are its stake in the TEN and Jubilee oil fields in Ghana.
This is low-cost oil. It expects 2021 production at roughly 65,000 barrels a day. In 2020, production averaged 75,000 barrels per day.
The company’s other production includes fields in Ivory Coast, Equatorial Guinea and Gabon. It says it focused on investing in producing assets with significant growth potential and value creation. Tullow Oil’s risks are large. Specifically, the company’s risk is whether price between $55/ barrel forecast for the decade. If they do, the company will be able to generate ample cash flow and strong shareholder reward. However, if it can’t roll over debt it risks bankruptcy.