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Tullow Oil plc records Shs30b shortfalls in net financing costs

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Tullow Oil has recorded a decrease of Shs 30 billion in net financing costs, the just-released half Year results for the period ended 30 June 2022 indicate.

The net financing costs decreased to $149m (Shs 570b) from $157m (Shs 600b). The decrease in financing costs is alluded to $19 million (Shs 72.7b) fees incurred in the first half of 2021 in relation to the refinancing of the RBL facility, a decrease of $5 million (Shs 19b) in interest on obligations under finance leases due to a decrease in a lease liability position, offset by a $14m (Shs 53.5b) increase in interest on borrowings.

Net financing costs include interest incurred on the Group’s debt facilities, foreign exchange gains or losses, the unwinding of discounts on decommissioning provisions, and the net financing costs associated with lease assets. These costs are offset by interest earned on cash deposits.

The results indicate that the company saw an Shs 176 billion increase in debts. The company’s debt increased from $2.2billion (Shs8.8tr) to $2.3billion (Shs 8.9tr). The Sales revenue increased from $ 727m (Shs 2. 8tr) to $846m (Shs 3.2tr), Gross profit increased from $ 321m (Shs 1.2tr) to $620m (Shs 2.3tr) and Profit after tax jumped from $93m (Shs 355b) to $264m (Shs 101b).

Free cash flow shot up from $ 86m (Shs 329b) to $205m (Shs 784b). The Free cash flow guidance includes the $75m (Shs Shs 287b) contingent consideration in relation to Tullow’s sale of its assets in Uganda to TotalEnergies.

In August 2019, Tullow announced its farm-down to Total and CNOOC lapsed following the expiry of the Sale and Purchase Agreements (SPAs). The expiry of the transaction was a result of being unable to agree on all on aspects of the tax treatment of the transaction with the government of Uganda which was a condition precedent to completing the SPAs.

On 23 April 2020, the Company announced that it had signed a Sale and Purchase Agreement with Total Uganda with an effective date of 1 January 2020, in which it agreed to transfer its entire interests in Blocks 1, 1A, 2, and 3A in Uganda and the proposed East African Crude Oil Pipeline (EACOP) System to Total. In closing, Tullow received $500 million consideration and a further $75 million after the Final Investment Decision was made earlier this year.

The half-year results show that the total group working interest production averaged 60,856 Barrels of oil equivalent per day (BOEPD) from 61,230 BOEPD. The marginal decrease in production primarily resulted from the 15-day maintenance shutdown of the Jubilee facility, the natural decline in TEN, and the sale of Equatorial Guinea and the Dussafu asset in Gabon in 21, offset by increased Jubilee production outside the maintenance shutdown period.

Speaking about the results, Rahul Dhir, Chief Executive Officer, Tullow Oil plc said, “The turnaround of Tullow has gained momentum in the first half of 2022, with solid production from our West African portfolio driving stronger financial performance. We added material, unhedged production in Ghana through the pre-emption of the Kosmos-Oxy deal, and took over the Operations & Maintenance (O&M) of the Jubilee FPSO to ensure that we can sustain the good operating performance and deliver further operating cost improvements. Our drilling program has been very efficient and at current performance levels we will be able to deliver our planned program of wells through next year with just one rig.”

Dhir said the Tullow Board is committed to the merger with Capricorn which continues to be recommended by both the Tullow and Capricorn Boards on the current terms.

“We firmly believe that the proposed merger has the potential for material value creation by implementing a combined business plan which accelerates investment in key projects and delivers very significant synergies.”

“We have a high quality, opportunity-rich portfolio, a clear and disciplined growth strategy, and an improving balance sheet. The Board looks to the future with confidence, and I look forward to sharing further details at a capital markets day,” he said

Merger with Capricorn Energy

On 1 June 2022 Tullow announced that it had reached an agreement with Capricorn Energy on the terms of an all-share merger to create a leading African energy company with a material and diversified asset base and a portfolio of investment opportunities delivering visible production growth.

The recommended merger will enable the new company to develop and implement a new business plan that accelerates the development of new, material opportunities, realize meaningful cost synergies, and deliver a combined group with robust cash generation and a resilient balance sheet.

The combined group will also have a sustainable capital returns program and a deep commitment to environmental stewardship, social investment, development of local content, and its national workforces.

Tullow expects to host a Capital Markets Day for investors and issue a circular and prospectus in connection with the recommended merger in the fourth quarter, ahead of a shareholder vote, followed by completion of the transaction before the end of the year.

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