Tullow Oil plc (TLW) Earnings Call Transcript & Summary

Good afternoon, and thank you for joining this webinar from Yellowstone Advisory. Today's company presenting is Tullow Oil, who released their full year results on the 8th of March. And with us today are Rahul Dhir, the CEO; and Richard Miller, the CFO. While we're waiting for everyone to arrive, please could you respond to the poll on your screen. And while you're doing that, I'm just going to go through a few admin points for you. The format today is a presentation which will cover the full year results and prospects of 2023, and then we're going to hand over to Q&A. [Operator Instructions] And we've had a couple of questions sent in ahead of time we'll try and cover all the questions at the end of the presentation. And then following the meeting, you'll be redirected to a survey we really appreciated. If you could just spend a few moments completing that. I think most people look likely have completed that poll now, which looks like we've got about 75% to 80% shareholders and 25% to 20% non-shareholders. So great to have a few new people to the story. I'm going to close that poll now, and I'd like to hand over to Rahul to start today's presentation.

Okay, everyone. Thank you very much, Alex, and a very good morning -- or I guess it's now afternoon, to all of you. It's maybe just a brief reflection. I think when I joined Tullow back in 2020, and I think some of you may recall that things look pretty bleak for us at that time. But we had conviction in the quality of the asset base, and we have to believe that with focus and discipline, we would turn the business around and unlock the underlying value in the business. And that conviction, I think, has been validated by our strong and operating and financial performance last year. We're now creating value, generating free cash flow. The balance sheet is much stronger with significant liquidity headroom and then we've got leverage of less than 1.5x. So on the operating front as well, we've had our second successive year of top quartile safety performance. When you look at the implementation of our investment plans, that's delivering very significant economic prosperity to our host nations. And importantly, we've got a really strong and diverse leadership team. It's -- along with a very energized organization. The thing that I'm particularly proud of is there's a deep commitment to delivering on the business plan. And this is kind of going beyond the call of beauty in terms of delivering excellence. And you can see the evidence of that last year in the successful preemption on part of the Oxy-Kosmos deal and the transition of the operations and maintenance on the Jubilee FPSO, I'll talk more about that. And of course, I'll talk quartile [indiscernible] performance. So I think '23, notwithstanding the external market environment, I think '23 for Tullow will be an exciting year as the results of our strategy become even more visible. For instance, in orderly, we'll achieve over 100,000 barrels a day of gross production in Jubilee in this half once the Jubilee Southeast infrastructure is installed. And I think some of you may remember, Jubilee was at 70,000 barrels a day at the end of 2020. And I think Richard will share and can give you more color. But the step-up in production will drive very material cash generation from the second half. And that increases not only our ability to repay debt, but also in -- it results in material equity value accretion. So that's the kind of cash flow story. But in addition to that, we've got some very important catalysts that will drive further value. And these include there's long-term gas sales agreement in Ghana, the submission of a revised plan of development, for Ken, the approval of the field development plan for Kenya as well as a strategic farm-out and then monetization of the very large prospective resource base. So if you look back over the last sort of 2.5, 3 years, we've been working hard to create a very unique platform for growth within the oil and gas sector. And I think it's gratifying to see that strategy being played out successfully. That's a quick introduction for me. Let me hand over to Richard, and then I'll come back at Thanks.

Thank you, Rahul, and good afternoon, all. It's a pleasure to take you through a strong set of financial results for 2022 plus our sort of longer-term financial outlook. So if I start with 2022, we have an exceptional operational performance through high uptime and our focused investment in our high-quality producing asset base has driven our financial performance. On a like-for-like basis, if you exclude the impact of the assets that we disposed of in '21, production is up 6% despite a planned shutdown in Jubilee in the first half of '22. This increase in production, combined with higher oil prices drove close to a 40% increase in revenue, and that's despite a $319 million payout under our hedge program. We've continued our relentless focus on our costs, which has enabled us to keep our operating costs flat and further reduce G&A despite the inflationary environment that we're seeing. We've also continued to invest in our asset base, increasing CapEx by close to 100 million to $354 million. Our allocation of CapEx has continued to focus on our high volume of short payback, high-return opportunities with close to 90% of our CapEx allocated to our producing assets. We also invested $126 million in Ghana preemption transaction, which pay for itself within 9 months and will underpin the future production growth at the company. Following a sustained period of investment, we've seen the cash flow potential of the business. We delivered $267 million of free cash flow last year, which included the impact of the legacy Norway arbitration payment and also the purchase price for Ghana preemption. This means over the last 2 years since we reset the business, we've delivered over $500 million of free cash flow. And at the same time, we've invested $750 million in organic and inorganic opportunities. This has enabled us to accelerate our deleveraging, hitting our gearing target of below 1.5x 3 years ahead of our original plan. Our guidance for '23 remains unchanged from the January trading update, with $400 million invested in our asset base, delivering $100 million of free cash flow at $80 a barrel or $200 million at $100 a barrel. This will enable us to get to around 1x gearing by year-end or by the end of '24, if oil prices remain around $80 a barrel. However, as projects don't really run to calendar years, this really only partially tells the story, which I'll cover on the next slide. So the Jubilee Southeast project, which Rahul will describe shortly, really does transform the cash flow generation capacity of the business, which the graph on the left tries to demonstrate. This plots Tullow's quarterly profiles of production, CapEx and decommissioning expenditure across '23. In the first half of 2023, we'll spend over $100 million completing the infrastructure and commissioning of the Jubilee Southeast project. Following first oil, which will be around midyear, we'll see a material uplift in production as we move into the second half of the year. These factors combined to result in a material uplift in free cash flow from mid this year, which can be sustained through into '24. The graph on the right illustrates our hedge program. We have 65% downside protection in the first half of '23. And as we move into the second half, we retained solid downside protection at 40%, but also increased exposure to a rising oil price environment. So if we move on to costs. Over the past 5 years, we've transformed our cost base. We've seen 30% reductions in OpEx and delivered 60% reductions in G&A. Our continued focus on OpEx, which is supported by the O&M transformation project has enabled us to reduce our unit OpEx in Ghana to $9 a barrel in '23. In terms of G&A, we're forecasting a fourth consecutive year of reductions, and this is driven by our emphasis on continuous improvement with a focus on how we can do things even more effectively and efficiently. Since we set ourselves a G&A reduction target in mid-2020, we've delivered over $300 million in cash savings. These actions across both OpEx and G&A are really important to offset some of the inflationary pressures we see in the industry at the moment. So on this next slide, I'll take you through the more medium-term outlook of the business. If we just look at the 2P core asset, the opportunity set that we've got, we'll see another $1.1 billion invested in our assets over the next 3 years. And this will generate over $800 million of free cash flow at $80 a barrel, which could increase to over $1.5 billion at $100 a barrel. This is all on a 2P basis and excludes the highly accretive impacts of the key catalysts, which Rahul will describe. In addition to the base plan, and as a reminder, we have material upside from contingent payments linked to previous divestments. If you take the Uganda payment, we're first all targeted in 2025, plateau production of 230 kbd. This will deliver a significant additional revenue stream for the group that we've not included in any long-term guidance. The group is also potentially due to receive up to $40 million aggregate contingent consideration from the EG and use assets we disposed of last year. So what does this all mean for our refinancing plans? At year-end, we have an audited 2P NPV, so asset value of $3.9 billion. Our net debt position was $1.9 billion, and we had over $1.1 billion of liquidity. And our next debt maturity is not until March '25. Ahead of this, as you can see from the graph, we'll generate material free cash flow and be at 1x gearing. Therefore, our conclusion is we have time. We have an ever-improving financial position, and we have a number of options to address our debt maturities on an opportunistic basis. So in summary, Tullow continues to deliver both operationally and financially, with like-for-like production, revenue, EBITDAX and profits up year-on-year. We've maintained our disciplined approach to capital allocation and cost management, which creates a clear pathway for Tullow to deliver significant free cash flow from mid this year. With the ongoing investment in our assets, delivery of the key catalysts, I'm confident that we'll maintain or even enhance our gross asset value with material deleveraging and the refinancing of our debt will provide a material equity agreement for shareholders. And with that, I'll hand back to Rahul.

Okay. Well, thank you very much, Richard. And I think let me start with really sort of the sense of purpose that the company has, which is really we're building a better future through responsible oil and gas developers. So what does that mean? It means a few things. Firstly, we're actively investing in social programs across [ our host nations ] with the aim to really make a meaningful impact working with the communities where we operate. To give you one example, we've invested in programs to support over 6,000 students across our host nations with STEM scholarships and educational support. The other important aspect of this is really building local content. And if I look back over the last 5 years, we've invested about $1.2 billion in our businesses through local companies. Our business also delivers very material value to our host nations. So last year, for example, we delivered across our host nations and taxes and royalties of nearly $0.5 billion. The other side, of course, is the focus on net-zero. As you probably know, we committed to net-zero on our Scope 1, Scope 2 missions by 2030. That's really driven by 2 big things: One is a very active decarbonization is reducing things like [ flaring ] on our 2 FPSOs in Ghana. And then the second one, which I'm super excited about is a nature-based carbon offset project in Ghana where we signed an MOU that we tend late last year, and we're hoping to take FID this year. Let me move on then to reserves and resource base. So the combined kind of 2P and 2C reserve resource basis by [ 830 million ] barrels of oil equivalent. And that's really key. That's what kind of creates the unique asset base and underpins the future growth of the business. And we're actively managing this kind of a hopper from resource to reserves to production. If you look at the 2P reserves from last year, it's been relatively flat at about 230 million barrels of oil equivalent. The 2C resource base is also pretty substantial. That's at over $600 million barrels. And this has been, again, relatively flat from last year, and this is the key that provides the replenishment potential for the reserve base. There are opportunities to organically increase both the reserves and the resources in the near-term that would come from gas commercialization in Ghana. Other things have been, we had encouraging run results in the Jubilee Southeast, where we discovered a new horizon. So they're going deeper -- into the Jubilee Southeast wells. In the business in Gabon, for example, we are working on development plans for [ Tweneboa ] where there is existing well test underway. So this has all been worked and evaluated. As Richard indicated, production in '22 grew at about [ 6% ] guided for '21. And in the coming year, as I shared earlier, Jubilee is set to [ cover ] 100,000 barrels a day gross in the second half. And that's really when the Jubilee Southeast development comes on stream. And that turn more than offsets the expected decline that we see in TEN and the [indiscernible] non-portfolio. So I think in aggregate, it sets up for a pretty strong both second half of '23 and from performance. Let me move on to really another important topic, which is as an operations that company, the focus on safety is really integral to how we work. So in '22, we had no injuries in our business and top-quartile process safety performance. And these just don't happen. I mean they're underpinned by actions that we're taking and also around building a strong safety culture. So what happens in the operations team that developed pretty detailed plans. We learn from every incident. And also, we keep track of what I call near misses, no matter how small they are. And you complement that you support that with a fit-for-purpose assurance program, so that provides all the right checks and balances. So what the result of that is a continuous learning culture where every accident is preventable. And every day, it represents an improvement in the day before. That's really important because it's a foundation that underpins our focus on operational excellence. So maybe that's a good segue. And so let me talk about the operational excellence. And what you've seen really over the past 3 years has been a steady improvement in uptime. And that really illustrates that journey that we're on. I'm really proud of the team. They continue to do a fantastic job in delivering production efficiency and maximizing production. And as demonstrating in this month that we have, which is that every barrel matters. A big thing last year for us was we successfully transferred the operation and maintenance of the FPSO in Jubilee, which is, of course, our prized asset from an external contractor to our operating team. And the impact of that is the really immediate, you can see between the first and the second half, we've seen safety and reliability performance is very strong. But also, we've seen [ learning ] costs to come down. And this is a major, major step for us in supporting the vision that we have of Tullow being a low-cost operator. So for me, I think what's been also very energizing really through this experience has been kind of a fundamental change in morale in the attitude and the ownership of the operating team. And what that's resulted in, as you can see and kind of visible improvements in how we control work in the housekeeping of the FPSOs, the order main and also importantly, kind of the general positivity of the FPSO. Let me now talk about kind of how we're delivering -- the kind of planning to deliver 100,000 barrels a day in Jubilee. So you may recall this, since April '21, we've been started -- restarted the investment program in Jubilee and we brought 7 wells on stream. And that's kind of really driven production from probably back end of 2020 was at about 70,000 barrels a day to an average for this year of 95,000 barrels a day. That's quite a remarkable achievement for the field that's kind of midlife. So it speaks to the quality of the asset, but it also speaks to the rigor of our investment program and also the operating discipline that I talked about. Now this year, the focus is on the completion of the subsea infrastructure in the eastern part of Jubilee, that's largely undeveloped. So that completion becomes a catalyst to bring these undeveloped resources on stream. And just to give you a sense, that infrastructure has got basically production manifolds to think about large plants on the seabed, water injection manifolds and related pipelines. And this, along with the drilling of 11 wells was about $1 billion gross project that was sanctioned in 2020. So the total cost really $1.1 billion remains very much in line despite the inflationary conditions. And overall, the project is progressing in line with our expectations to that further kind of underpins or illustrates the capability that we're building in the organization around not just operations in drilling but also on ground [ field ] execution. So the plan in Jubilee Southeast is to complete 4 wells this year. That's going to drive the step change in production. But there is a deep inventory. There's another 7 wells planned over the next couple of years in that. So like I said, the first oil from Jubilee is a significant milestone, and we're looking forward to that in the second half of the year. Let me focus on TEN really where the -- what the effort that we had in '22 was really on reservoir management. And we've been again, the demonstrated impact of that has been a reduction in the annual decline rates. So in '22, the decline rates were less than half that we had in 2021. Now we've got no wells planned in '23. So our focus will be on active reservoir management and making sure we sustain the very strong operating performance that we've had 98-plus percent uptime and improving the gas handling in the FPSO for this year, so there is a planned shutdown as well in the second half of the year. What is true intent is that there is a lot of complexity, but there's also a very significant undeveloped resource base across the various accumulations at TEN. And we're planning to monetize these resources through a combination of infill drilling, through phase development of new areas near the existing infrastructure and also we're developing to very significant gas resources, and also drilling prospective resources. So we're working on a comprehensive plan and development that would capture all of these opportunities in that managed to submit that to the government of Ghana later this year. And our hope is that you draw a line under the kind of bad news if you would on TEN, which seems to have a disproportionate impact on the narrative, and set ourselves up to positive increments once the plan of development is clear and laid out. In addition to this effort, we're also looking to restructure the cost base of the FPSO as we go forward. Let me now move on to talking about Gabon and Côte d'Ivoire. So Gabon is very interesting because we have an inventory kind of opportunities, which is really infrastructure linked call it exploration opportunity. The Simba probably is the best illustration impact. So the first kind of Simba appraisal well was drilled back in late 2018 and put on stream in 2019. And these are the sort of wells they pay back within months. And then the -- since then, I think in the end of 2021, we drilled Simba 3, there was this part of an expansion project that was put on stream early in '22, and that's paid off. Now Simba is now in its mature those wells are mature and so is in decline, but we're planning a number of new prospects that would be mature, so we're planning some new exploration in that later this year or early next year. In addition to that, in Gabon around the Tchatamba area, we've identified a number of opportunities where we have infrastructure, and we can bring new fields on stream ideative that includes [indiscernible] discovery where we're doing a long-term production test. In Cote d'Ivoire, really, the big focus for us is -- and you see this in the chart on the 2 blocks that are sit on the Ghana Cote d'Ivoire order. This is really an extension of the same play from Jubilee and TEN into Cote d'Ivoire. So we feel like we're best placed to really so -- develop, explore and develop this. In fact, we're planning for an exploration well in CI-524 in 2024. Let me move on to just some thoughts on the kind of strategy as well. And the main thing, really, in some ways, we're very simple company, right? So you have this deleveraging story from the cash generation, which is derisked with the Jubilee Southeast coming on stream in the second half, and then we have a number of near-term [ catalysts ]. And each 1 of these can unlock the [ material ] value. So in Kenya, we submitted a couple of weeks ago, the final field development plan for approval to the government. And we expect that this kicks off the FDP approval process, including ratification by the parliament to conclude later this year. And in parallel, we're continuing to progress the farm down to a strategic partner. As I mentioned earlier, we're focusing on a long-term supply agreement for indigenous gas. And this is important for Ghana because it's not just enhances energy security, but it also facilitates industrial development. And at the same time, would unlock value from a very substantial gas resource base for us. The exploration strategy very much, as you heard me talk about the context of Gabon and Cote d'Ivoire, very much focused around our producing assets in West Africa, where we have a deep understanding of the geoscience and of course, existing infrastructure. In addition to that, we do have some very large prospective resource in Guyana and Argentina. And we really we're continuing to looking at opportunities to unlock that. So when you look at all of this, really, what we've done is we created a platform of assets and a set of capabilities that I would submit to you, it's quite unique in the sector. And I think as we delever, we create some financial flexibility that will also, I think, position us to consider additional opportunities for growth. So I think the [ issue ] in this is that the action plans, I don't know all of these are pretty well defined. I think the delivery for each of these catalysts is embedded in our KPIs, so there's a clear path in terms of how we're going to get this done. So I think as you look in sort of conclusion, Richard showed this as well, '22 has really been a strong -- very strong financial operational and drilling performance. And there's been a couple with significant progress on the delivery of the Jubilee Southeast project. So overall, where we are today in terms of the delivery is well ahead of the plans that we had set out late in 2020. And it certainly builds on the success that we had in 2021. I think the performance really underscores the deep potential in the asset base. And also, I'm sure you agree, it demonstrates a strong commitment of the team to deliver value from that. As Richard shared kind of last year -- at the end of last year, balance sheet was strong. We had liquidity of over $1 billion and gearing was at $1.3 billion. I think '23 will deliver tangible results with a material step-up in free cash flow in the second half of 2023, and that will help accelerate deleveraging. And of course, as we delever, we accrete equity value. And my submission to use that accretion process is now revised. I think it's fair to say that business is undervalued on all metrics. It's largely due to a perceived that overhang, I think, Richard originally in particular, spend a lot of time talking to both equity and debt investors. So we're going to share insights from that as well in the Q&A. I think as the hedges roll off, you'll see significant upside to the oil prices. It doesn't feel that it right now, but certainly, we see where the world has been significantly underinvested. There is a kind of a structural uplift to oil prices, I think that is widely anticipated. I think with a strong balance sheet, you've got visible and accelerated deleveraging. I think this is the year that people will stop worrying about debt at Tullow. And I think that's going to be a major game changer for the stock price. And beyond that, of course, is the impact of individually and accumulatively of all the catalysts that I just highlighted in the previous slide. So you can see kind of why we as a management team, as a team at Tullow we're really excited about. It's very compelling. And it's a very unique proposition in the Tullow offers today. And I would just say, look, the team's worked really hard. They continue to work really hard to believe in the business. And I really want to thank all of our colleagues for their commitment and the delivery. I think we're also very grateful to the host nations. It's a complex relationship, but we work well. And -- it means I think there's a general sense of support from around whenever we work and also kind of to our shareholders to all of you and our debt investors for the confidence in us. So I think with that, let me stop here. I think Alex has been -- got a lot of questions, I think, for Richard and I and happy to take those.

Yes. Thank you, Rahul and Richard, for that presentation. We're glad to hear about the strong financial and operational performance you've posted in 2022. We have had a lot of questions so we'll try and get through as [ only ] as we can. The first one starts up. You've owned the Guyana and [ Orinduik ] assets for a long time, and it's difficult to see much progress there. Get time for someone else to progress this asset, should you be perhaps considering an exit and when and how could this happen?

Well, thank you. I think our strategy in Latin America is very clear. These are large prospective resources in emerging basins. We do not plan to allocate a lot of capital to these. The idea is to try and find appropriate partners where we can retain an interest on a carried basis without spending a lot of capital, right? Now the last few years, particularly around COVID time and all was not the most ideal time to be looking for [ far more ] partners. I think as the oil prices have stabilized at higher levels, exploration is coming back. We certainly see this is the right time to be looking for partners. So yes, I think we certainly would be looking for partners, but while retaining some exposure to [indiscernible].

Okay. What do management think the market needs to see in order to put the equities price where it deserves?

So look, let me give you kind of my perspective a little bit, and I think I'll hand over to Richard because he's done a lot of work and thinking on this. Look, my sense is that trust is easy to lose and hard to build. And I think what we have done and will continue to do is to deliver and to build that trust, right? And I think that we're reaching that point where people are -- we were seeing an institutional investor last week, I think it was -- and the general feedback from some of these people was that they no longer see us as a turnaround situation. So that's gratified. So I think certainly, continuing delivery, embedding all the kind of discipline around cost of [indiscernible] excellence in the culture. So that's not something that people worry about. I think that's quite key. But there's a more specific answer to that, which I'll invite Richard to share.

Yes. Thanks, Rahul. I think the sort of the obvious piece of feedback that we sort of, I suppose, consistently get is around the perceived risk on the balance sheet. So obviously, we've been on a profile of cash generation over the last couple of years. We've delivered over $500 million of deleveraging. As you look forward, there's another $800 million of free cash flow at $80 a barrel. And I think, as Rahul mentioned earlier, it is at what point what is that our past delivery and sort of [indiscernible] the risk the future. Because from where we sit today from a total net debt position of 1.9x, we have gearing at 1.3x, that's still slightly higher than where we'd like it to be, but we now are on that platform for continued reduction. So as Rahul mentioned, the sort of key thing from an equity perception perspective will be when people stop being concerned around the debt position. So we just need to continue to work hard. We've got a number of options available to us in terms of refinancing on ex maturities, not until March '25. So our ability to be proactive and address that maturity in advance on terms that are sort of accretive for the company. I think it will be 1 of the events that begins to change that action on the equity value of the company.

Okay. I think you mentioned some of this in your answer there, Rahul, but it's a separate question here, which looks like it's linked, and the question is, would you still say that you're turning around the company? Or have you moved into recovery mode? And when do you go move to growth or capital return?

So I think, look, in business have learned, you're never complacent, right? Every day, you're trying to be a little bit better than the day before. But having said that, I feel pretty good about where we are as a company given the focus on for the last 2.5 years on cost reduction, on operating performance, drilling delivery of the project. So I feel -- I would say -- and given that we're ahead of where our plans work, I feel pretty good about that. So in a kind of turnaround sense, I think that what the investors kind of said to us, which is don't know [indiscernible] in turn on to. I think that's in part answer to the question. I think the focus very much for us in '23 is on delivery on embedding that sort of ethos within the culture of the company to make sure that's sustained. I think it's very much about growth in the sense that we're delivering organic growth from our assets that we talked at length about Jubilee Southeast, but also a number of the other catalysts. So I think we certainly have line of sight on a number of organic growth opportunities. And I think I also said that we're well-positioned if inorganic opportunities come along. We're quite a unique company in Africa, given the relationships we have, given the operating track record that we have created, so I think that opportunity is there. And then also, I think as we get to kind of getting targets at below 1x, that's the time we start looking at shareholder return as well. So I think I would say feeling good about where we are as we kind of stabilize the business, embedding continuous improvement, a number of very visible organic growth opportunities, well-positioned for inorganic and then as we delever we'd like to be in a position where it can turn capital shareholders.

Brilliant. Got a couple of quite specific questions in terms of assets. And the first one is regarding the Ghana gas agreement. What's the time scale to signing this agreement with the Ghanaian government? And will it be backdated?

So I think there is a -- I can't give you kind of a precise timeframe because having worked in Africa for over a decade, it's hard to predict precise timeframes. What I can say is that there is a real imperative from the government of Ghana to get the gas sales agreement done. And the reason being, you'll remember last year with the Russia-Ukraine crisis or war, a lot of the LNG from around the world is flowing into Western Europe, right? So countries like Ghana actually have been very adversely impacted by that because they were counting on LNG supply for power generation. So it's creating a shortfall in energy shortage, if you will, in the country. So there's a real imperative from the government to try and get an agreement done quickly. So I'm encouraged by that. I wouldn't unfortunately be able to give you a precise timeframe on that. The second part of the question, Alex, was...

Well, I don't think that was the second part of the question. I guess, will it be backdated?

Okay. No, well, it wouldn't be backdated because I think you would have seen that the foundation gas, which is the free gas arrangement that dated back, I think, over a decade, that ended in December. And currently, we have a provisional interim gas agreement, which is nominal prices, about $0.50 per Mcf. And that's going to carry on through about mid-year.

Okay. Moving on to Kenya. Is the company negotiating the farm that totally tied to the FID or other issues?

So it's -- what's interesting is that if you look back over the last year or so, I guess, since we've been discussing the farm out, 2 things. So one is you're dealing with governments on both sides, the Kenyan government and potential [ farm-in ] most of the people we're talking to a national oil company. So that in itself is a process that's slow. Second is that a lot of the [ NOCs ], particularly in Asia last year were distracted with what was happening in Russia, which is creating opportunities for them. So that was another factor. The third is, we had elections in Kenya, so there was really no government in place for people to engage with. I think that's obviously changed now. We have a very active President. We have a minister in place who knows their project in the sector well. So they are pretty engaged now, and that was evidenced, obviously, with us submitting the field development plan, the final version a couple of weeks ago, and a real desire on the government to try and get the FDP the field development plan approved. While there's no explicit linkage between the FDP approval and the farm-down, but obviously a potential [ farm-in ], if you were an investor coming into the project, you'd want to see the shape of the final development plan as well before kind of finalizing the improvement. So there is some linkage there. And just one point of clarification. The field development plan submission back in December '21 was an important milestone in protecting the license. So we have the license. What we're discussing with the Kenyan government now is the idea of FID, which will be separate from a field development plan approval.

Okay. Question here relates back to sort of, I guess, historical trading update. So in January '22, you initially guided $25 million of underlying free cash flow, excluding one-off payments from Total. And then in the latest trading update, January '23, mentioned that underlying free cash flow in '22 would have been $393 million, also excluding the $75 million you received from Total and excluding the payments you made to Norwegian arbitration of $76 million and adjusted for the $126 million consideration for the preemption transaction in Ghana. And the question is, how is it possible to get such a big discrepancy? And I guess, why you, I guess, underestimated the figures back in January '22?

Thank you. Richard, do you want to...

Yes. Sure. So look, the original free cash flow guidance that we set out in January '22 was based on $75 a barrel. So one of the biggest drivers between where we finished up at the end of '22, which is $267 million was an uplift in oil prices. So we saw sort of realized price re-hedging was just shy of $105 a barrel. So there was a $20 uplift in market oil prices between we guided initially and where the outturn was. The 2 other things that sort of impacted that was, firstly, our management of costs. So during the year, we sort of exceeded our expectations and ability to continue to reduce costs. And also, we had some deferrals of some decommissioning work in Mauritania that moved from '22 into '23. So they were the biggest drivers. I think one element of the question also referred to Ghana preemption. So that was $126 million that went out last year, but it paid itself back within 9 months. So at the end of the year, that payment was actually cash flow positive. So it sort of positively contributed to suppose the increase in guidance. So in summary, oil prices main driver, sort of able to exceed our expectations on cost and then a bit of deferring of decommissioning expenditure.

Okay. And then sort of looking forward to 2023, you're guiding free cash flow of just $100 million at $80 a barrel, i.e., trying to be accurate or conservative?

Richard?

Yes, it's very much accurate. I mean that's -- it's based on guidance of $80 a barrel. Look, we've seen where we are at the moment. I mean we're currently seeing prices around $72. But as we all said, there's a wider market expectation prices could be higher in the second half of the year. Whenever we set our guidance, it's based on the most likely outcome. We will work as hard as we can to sort of deliver better than that, but obviously, there's underlying risks within the business as well. So it's very much a best estimate.

So some of the catalysts you outlined have been similar for a number of years now. What has materially changed now to make you state that these realistic near-term catalysts rather than continue to be aspirational catalysts?

So I think the -- again, projects or some of these don't necessarily lend themselves to calendar years. So as I run through the catalyst, I think the TEN plan development really is a culmination of a couple of years' worth of work really in terms of understanding the complexity of the reservoir. Processing of additional kind of 4D seismic data, some disappointments, the 2 wells we drilled in the Riser Base. So all of that has been factored into the planning development. So that candidly is kind of is a new thing. Similarly, I think the imperative on the gas sales agreement really kicked off kind of mid last year, given the impending kind of gas shortage in Ghana. So that's really we were hoping we would get an agreement kind of in place potentially kind of late last year, but that start up slipped into '23. So -- and Kenya, again, the real impetus there as explained earlier was starting last year. And given the -- all the factors that I explained, I think it's easy to see why we're kind of focusing on that for this year. So I think there are pretty good reasons for feeling good about all of these catalysts this year. But again, look, these are catalysts, right? So they could happen, they could not happen. I think what we're trying to do is be transparent around the opportunity, and I think recognize that any one of these or each one of these individually can have quite a material impact on the share price.

Okay. But a couple of questions on oil price hedges. So one is, what are your expectations for realized price after hedging for 2023? And the sort of linked question to that. Do the bank's debt requirements require the company to hedge some of your oil? And if yes, what percentage of that?

Richard, would you please take that?

Yes. So look, the realization for '23, so our guidance is $80 a barrel. And sort of the calls on the -- on our existing hedge portfolio sort of average at $75 a barrel for the most of '23. So the actual realization between -- based on a market price of $80 will be slightly south of $80, but not too different. In terms of what the banks require us to do, so when we sort of did our last refinancing in 2021, we had a static requirement. So it required us for 3 years post the anniversary of taking out that financing to hedge 75% and 50% for those 3 calendar years. That's not a rolling requirement. It was a static requirement. So we've started to see, as you can see from one of the graphs in the pack, you start to see our hedge book start to roll off. Look, we're obviously there's volatility that you can see in pricing at the moment. We'll continue to hedge point forwards. But will very much do it on a sort of a ratable opportunistic basis over a period of time to build up a sensible layer of hedging to providers with that core downside protection for when we do see volatility, but provide us with access to oil prices. Paint us all to pay out $320 million to the banks last year, but it was essentially as part of the refinancing.

Around 75% of your producing assets are in Ghana, which is a country that is defaulted on its debt. What is the risk for Tullow oil from higher taxes and other new measures?

So I think what's important is to recognize that our business in Ghana and Gabon, pretty much everywhere we work is on the basis of petroleum agreements or production sharing contracts. And I've worked emerging markets, most of my career, and that's a pretty standard contractual framework. Different, by the way, from what happens in the U.K., right? And what's unique about what's particular common across all of these petroleum agreements, including Gabon and Ghana are 3 things. One is they provide for [ focus and stability ]. And what that means is that the tax regime -- the fiscal regime to maybe at the time of when you sign the contract is the one that will prevail through the life of the contract. So that fiscal stability provision is very, very critical. The second is they provide for international arbitration of disputes. And the third is they protect you from enforcement actions whilst you have disputes. And this is not just unique to ours. And like, for example, in Ghana, our petroleum agreement has forced of law because it's approved by the Ghanaian parliament, right? So I think what's key to understand whether we are in Ghana or any other country that we operate in is the robustness of those protections that you have, which are underpinned by the ability to go national [indiscernible].

Okay. A question here on directors buying of stock. I guess just a statement here, which is regular significant direct advice will be reassuring when you've got oil at $72 and falling in the share price of [ $26 ] I guess the question is, would you agree with that? Or what are your thoughts on the directed buying of stock?

Yes. Look, I think that we've been keen to buy in stock myself. But we've talked about this at the Board as well. I think the windows typically as a public company, you have a window when let's say there is no material nonpublic information at the director's phone and new or [indiscernible] of disclosure windows. Unfortunately, since the last year, we've been in closed windows, whether it was Capricorn, whether it's other situations. So we've not really had that open window. But what I can assure you is that there is a very strong desire for people [indiscernible] in the game, including our Chair, and it's just a question of getting that right window. But yes, no, I think we -- I would agree with not just from an optics of it. But look, as an investment proposition, we're committed with our lives this company, but I do think that we believe there is a real compelling value.

Okay. We've got a couple of questions here on the Ghanaian tax dispute. So one question is, has the dispute with the Ghanaian tax authorities being settled? And the other question is, can you discuss and explain the several tax issues you have against the government of Ghana, are these potential liabilities that you haven't disclosed?

So I think Richard has done a really good job of kind of disclosing all of that in the results. But Richard, maybe you can talk through the different categories and how we see them, please.

Yes, sure. So yes, we -- there's 3 sort of primary disputes that are currently sort of within arbitration. So we've got the branch profit remittance tax, which is the first claim that we took to arbitration back in 2021. That's for $320 million. We then took another 2 claims to international arbitration in February of this year. So both around $190 million. One is for interest deductibility and the other one is assessment of business interruption insurance proceeds. So they're the sort of, I suppose, the 3 claims that we have within arbitration. There are sort of a number of other items that sort of resulted from the 2014 to '16 audit. It's pretty, as Rahul said, sort of well disclosed within our results statement, the sort of the total of contingent liability number that we have is around $1.1 billion. We're obviously incredibly confident of our position, which is why there's no material provision on our balance sheet in respect of these claims. And it's just part of the process that we need to work through point forward. And I think in terms of the first aspect of the question, have any of them been settled, not to date. No.

Okay. looking at the balance sheet here, you say that you have a strong balance sheet, but actually, you've got $1.9 billion of debt and the bonds are trading in the market as if the company has defaulted with yields around 25% to 30%. Could you comment on, I guess, the strength of the balance sheet in that context of those numbers?

Yes. Look, I think the numbers from both the gearing. So it's not -- it's the absolute debt is $1.9 billion net debt, but the gearing is [ 1.3x ] billion and liquidity, as Richard said. And the other side of it, which is this paradox, right, which is, I think, what creates the opportunity is the bonds are trading at whatever, $0.60, $0.65 on the dollar. This is the [ $0.25 ], the unsecured. Again, I think Richard spends time thinking about this. There is probably your better place to answer this.

Yes. So look, I mean, I think from a balance sheet perspective, Rahul, as you mentioned, we did $1.9 billion of total debt. As we set out in the presentation today at $80 a barrel will be generating $800 million of free cash flow over the next 3 years. That takes us down to $1.1 billion worth of debt, and that's only on a TP basis as well. So it doesn't include the cash flow generation capacity of the catalyst, will be at 1x gearing either by the end of this year or by the end of '24 oil price dependent. So you're going into a refinancing with a bit over $1 billion of net debt, 1x gearing and an asset value, which is also the other important element of the equation, like how much of assets worth and that close -- sits close to $4 billion at the moment. So -- this is what Rahul mentioned, that inflection point, when the comfort of our and confidence in the ability for the company to deliver that free cash flow the medium-erm. We've proved it so far. We delivered $500 million over the last couple of years. But obviously, it's important that we carry on that trajectory. That's that point in time. And as Rahul said, it's a massive opportunity from an equity value perspective because of where the company sits at the moment. And look, in terms of the bonds and where they're trading, look, they're trading at significant discounts. It's one of the factors that sort of makes it sort of difficult for new people to start investing in the equity at the moment. We're pretty confident that we have a number of options to be able to address the maturities. And as we start to be able to pull the trigger on some of those options, then we're pretty confident and the bonds will get to far more normal trading prices. I mean they're not particularly liquid instruments at the moment in terms of the ability to get them and the prices on the screen.

Interesting. We've got a sort of a follow-up question specifically on the bonds, which says they're trading at a significant discount at the moment. Why aren't you using your liquidity to buy back the bonds?

Yes. No, it's a really good question. I mean we -- they obviously as an element to secure some value, both accrete equity value and also be able to show confidence. It's sort of one lever that we have to pull. But as I mentioned, we've got a number of options available to us to be able to address our maturities. When we spend our cash, we can only spend it once. So it's really important that we -- I suppose, pulled the lever in the right way at the right time in a way that is -- doesn't just work for our debt holders, but it's also value accretive for our equity holders as well.

Brilliant. And I think we've got one -- time for one last question here. And this one is looking forward. What are your expectations and hopes for 2024 and 2025, once Jubilee Southeast is on stream in terms of production, CapEx and cash flow? So quite a big question, but hopefully, you can cover that.

What I think I mean -- Richard has given guidance on kind of a 2P basis. So I think I would -- if you permit me to answer it less from a quantitative point of view, but I think the vision that we have, right, and I think that may be useful is to say, look, you come in 24, you've derisked the business. You have over 100,000 barrels a day on Jubilee you've got a plan of development that you've submitted the government has approved it, which means that you've got a clear path on TEN as you go forward. You've got a gas sales agreement in place which is delivering value allows you to book reserves and generate additional cash flow. You've got a clear plan forward on Kenya. Maybe you [ farmed out ] something in Guyana or Argentina, and you've drilled some good exploration wells, whether it's in Cote d'Ivoire or in Gabon. So I think that's a very clear kind of vision we have for where we want to take the business organically in '24. I think if I build on top of that from a financial point of view, we said there's a very clear kind of path on refinancing. People have stopped worrying about debt on Tullow. And I think as we -- if you were to go in a time machine and go to '24 at this time next year, people have started worrying about the debt, we have the financial flexibility. Maybe we've done something inorganic to add some compelling revenue. So I think -- it's not -- I mean, I've been so for -- since 2006 of various businesses. I think it's not -- very rarely do you find in life that you have a very clear path of what you need to do to deliver value, right? And I think we're in that point. And I think it's very rarely do you find yourself at an inflection point. And what I said to the team, if we have a Monday morning call to we have a session today as well. And in some ways, when you look at the market, it can be sort of concerning. But I think what we as a team are doing is saying, look, we're very clear about what needs to get done. We are very clear about the value of our business. And we're confident as we deliver that, that value will come through, right? And I think that's the submission, I would say to you from a kind of investment proposition for Tullow.

Brilliant. Well, that broad to the end of today's webinar with Tullow Oil. Rahul and Richard, thank you very much for clear presentation, I think, an upbeat presentation and also for answering all those questions so comprehensively. So I know that's really appreciated. So thank you for that. And for all our audience. Thank you for attending. I'd like to just mention that when you leave today, there will be some feedback questions that will be asked. And if you could complete those, we very much appreciate that. And then just to flag up a couple of webinars we've got coming up tomorrow, the 21st of March, we got IMI. Next week on the 28th, both Ken and Lloyds Banking Group. And then into May, we've got Sainsbury's and details of all of those on the Yellowstone Advisory webinar -- website. So thank you all for attending. Thank you for Rahul and Richard, and we hope see you all soon.

Thank you. All the best, everyone.

Thank you.