Tullow Oil plc (TLW) Earnings Call Transcript & Summary

Hello, and welcome. I am Ian Perks, the CEO of Tullow, and I'm joined today for this presentation by Richard Miller, our CFO. For those of you that don't know me, I have 30 years of experience in the upstream oil and gas industry and have worked extensively in Africa and have held senior roles at BG, Anadarko and Total. I'm part of the reset and aligned Tullow Board and senior leadership team tasked with improving Tullow's performance going forward. Our Board, as announced last year, is led by Roald Goethe as Chair, who has excellent relations with the government of Ghana, and he's joined by Independent Non-Executive Director, Rebecca Wiles, who has strong subsurface skills and an extensive oil and gas background. Our senior leadership includes Richard as CFO; Jean-Medard Madama as our MD in Ghana; and Stuart Cooper, Julia Ross and Mike Walsh running corporate services and support functions. We're pleased to present to you today the progress we have made operationally, but also most importantly, financially and strategically with the refinancing transaction. I will start the presentation by providing an overview of the business. Richard will then explain the refinancing agreement we have reached with our creditors, and I will then provide a more detailed business update and concluding my remarks. So the starting point is to acknowledge that within Tullow, we recognize the performance hasn't been anywhere near where it needs to be the last few years. And so starting at the beginning of last year, under Richard's leadership, we set about a clear strategy to deliver improvement. We started that journey against the backdrop of being a trusted partner and reliable operator with a very strong reputation within Ghana and across Africa. Nevertheless, we still needed to develop a much stronger foundation that we could use to deliver better operational performance, improved cash flow and growth. So throughout '25 and early '26, we've delivered on a set of criteria to build that foundation. Starting with consolidation of our business so we could focus fully on our high-value core assets in Ghana, namely Jubilee and TEN. And that concluded with the sale of our Gabon and Kenya businesses. That, in turn, has allowed us to significantly reduce our cost base during 2025, and we've also identified additional cost-saving opportunities going forward. We also shot 4D seismic and completed the OBN survey. So we now have much better data with which to fully understand the reservoirs and fluid movement within the TEN and Jubilee fields. We've also been working on a full reset of our relations with the government of Ghana, starting with the MOU that was signed last year and recently concluded with parliament ratification of a suite of agreements that provide a number of benefits. So these benefits include an extension of our petroleum agreements, providing a stable investment environment and runway for future development of the Jubilee and TEN reserves. Also provides payment security for gas and a framework agreement for gas supply from the TEN field. This is absolutely critical and is a major achievement as it enables better cash flow management and also unlocks future gas development opportunities. We're also continuing positive discussions with the government to settle our outstanding 2 GRA tax disputes and hope to finalize agreements for those shortly, hence, removing that potential liability from our balance sheet. Finally, we've signed an agreement to purchase the TEN FPSO. This significantly improves our economics for that field by removing the lease costs and also enables an opportunity to capture operating cost savings, especially related to the synergies we have now with the ownership of the KNK FPSO on Jubilee. So with the foundations in place, we now turn our attention to improve performance and growth, which is obviously already underway. We see an opportunity for better cash flow management as a result of further cost reductions, both G&A and operating costs and reducing receivables position with the government of Ghana. With the new reservoir model and seismic data, we're planning future drilling campaigns beyond the current one. We see an opportunity for long-term play for TEN gas, which is definitely a focus for the current government and provides a win-win opportunity. Other opportunities to improve production exist via multiphase pumps, workover campaigns and riser-based gas lift. Our key metrics for '26 include group production guidance of between 34,000 to 42,000 barrels of oil equivalent per day, a CapEx profile of $200 million focused on the ongoing Jubilee drilling campaign, where we expect 6 wells on stream this year and prefinancing cash flow of between $150 million and $180 million. Now of course, none of our growth story is possible without a solution to our debt maturity in May. And so now I'm pleased to hand over to Richard, who can discuss the refinancing transaction that we announced this morning. Richard?

Thanks, Ian. This morning, we announced the refinancing transaction that will strengthen Tullow's financial position and provide a stable platform that will enable us to deliver value for our stakeholders. As a reminder, we currently have $1.3 billion of senior secured notes due in May 2026 and a $400 million facility provided by Glencore due in November 2028. The transaction we announced will extend the senior secured notes to November 2028 and the Glencore facility to May 2030. We have also agreed a new money cargo prepayment facility with Glencore for $100 million to provide the company with a robust liquidity position throughout the extension. Our liquidity profile is further strengthened by the lowering of our cash interest costs by over $50 million per year through the use of paid-in-kind and pay-if-you-can interest. The transaction is currently supported by 66% of senior noteholders and by Glencore. We are hopeful to achieve the support of over 90% of noteholders in the coming weeks. And we expect the refinancing to complete in the second quarter of 2026. The extension of our maturities, provision of a new money facility and reduction in cash interest will provide Tullow with a stable platform to get after the value-accretive investment and projects, which Ian will provide more details on shortly. With an enhanced value proposition and more time, we will be able to explore longer-term refinancing options, strategic investment or a value maximized divestment process. We will appoint 3 new independent nonexecutive directors to the Board, and they with an existing Tullow director, will form a subcommittee to oversee a disciplined value maximization process. This next slide summarizes the key terms of the transaction I have outlined in the previous slide. I won't walk through all the terms here, but I would like to reiterate the outcome of these terms is to extend the maturities, provide improved liquidity and reduce cash interest costs. Our existing senior secured noteholders will be written down to 0 and released and holders will receive an equal amount of new extended notes, which will mature in November 2028. The maturity date will accelerate to May 2028 if a refinancing or divestment option has not been progressed by September 2027. At least [ $100 million ] of the notes will be redeemed at par from excess cash on or around the closing date. The extended notes will carry the same cash interest cost as today, but will also be due 3% paid-in-kind and 1.75% pay-if-you-can interest. Our existing Glencore facility will also be written down to 0 and released, and Glencore will receive an equal amount of new junior notes. The maturity of these notes will be May 2030 and will rank junior to the new extended notes. The junior notes will not incur any cash interest but will accrue SOFR plus 12.75% paid-in-kind with an increase when oil price is above a certain level. The existing Jubilee and TEN offtake arrangements will continue. Our liquidity position will further be strengthened through the addition of a new $100 million cargo prepayment facility provided by Glencore. This facility will mature in November 2028. Further details regarding the pro forma capital structure and key terms are included in the appendix of this presentation. We have entered into a lockup agreement with 66% of noteholders, and we also have Glencore support. If over 90% of noteholders to the lockup agreement, which we are hopeful to achieve, the transaction will be implemented by way of consent solicitation. The timetable for which will be announced upon the 90% threshold being achieved. A fee will be payable to those noteholders providing their consent. As a precaution and to avoid any unnecessary delays and achieve a timely completion should we not reach the 90% threshold, court dates for implementation via a U.K. restructuring plan have been reserved if this route is required. Both of the processes will allow us to complete the transaction in the second quarter ahead of our May maturity. I'll now hand back to Ian to explain some of our planned actions to maximize value.

Yes. Thank you, Richard. So I'd now like to go into more detail on the 3 planning scenarios we have generated and the opportunity set that lies ahead of us. As mentioned previously, the foundation for growth has been built through the extension of our petroleum agreements, security for gas payment, 4D seismic and OBN survey and the TEN FPSO purchase. In Jubilee, we see tremendous opportunity to improve overall recovery rates ranging from between 35% and 40%, where 40% is seen as achievable for a field of this type. This is recovery against a STOIIP of 1.8 billion barrels. We have an ongoing drilling campaign underway with 2 wells already on stream and producing at the high end of expectations. We have a further 4 production wells to drill and a water injection well this year. We also have a significant inventory of possible well locations being reviewed with a view to further campaigns. All of these wells are taking into account the new seismic data that we have. In addition, we're focused on day-to-day operations improvement from our existing well stock. And this is based on a water injection strategy for voidage replacement so we can maintain pressure support and stabilize decline, a workover campaign delivering low-cost incremental production. Riser-based gas lift, which is already working in the east of the field and should be up and running in the West by early next year; and a multiphase pump project to reduce back pressure in the reservoir and improve production rates. For TEN, we see opportunity in Ntomme, where we see similar characteristics to Jubilee and therefore, recovery rates of between 30% and 35% as possible and also for a long-term TEN gas play, where we have gas reserves ready for development. So here, we lay out 3 scenarios. The low case is driven by 2P reserves only, where production is limited to known development projects in the near-term horizon with a very high degree of certainty that will happen. We see this as an unrealistic scenario as it only assumes 35% recovery from Jubilee and 30% from Ntomme and that we sanctioned no further developments over the longer term despite having just shot 40 seismic and OBN and the petroleum agreement extensions. Our business plan, which is in our base case assumes 38% to 39% recovery from Jubilee, but no change to Ntomme recovery at 30% assumes additional drilling and projects. Our upside case is still a very much realistic outcome. It's based on 40% recovery from Jubilee and 35% from Ntomme. It's based on the business plan, but with the addition of less granular and longer-term projects. It also assumes a slightly more optimistic production profile from these wells compared to the business plan case. So the asset value for these cases, assuming a Brent oil price of $65 a barrel flat real and a discount rate of 15% is $1.1 billion, $1.4 billion and $1.7 billion, respectively. So in conclusion, I'd like to make 4 key points. First, we acknowledge our performance has not been what it needs to be in recent years. Second, we have agreed a comprehensive refinancing transaction with the support of both our noteholders and Glencore, which will allow us to deliver on our objectives. Third, we've established a firm foundation for improved performance and growth based on a key set of deliverables that we have successfully achieved during 2025 and early 2026. And lastly, we have a clear set of well-defined opportunities to chase in the coming years to secure additional value for the business. Thank you for your time today.