Tullow Oil shares jump as firm sells Uganda assets for $575m
Tullow Oil has sold its last remaining stakes in its Uganda business to French major Total, the first step in its plan to bolster its fragile finances.
The deal will see Total pay the Africa-focused oil firm $575m (£465.2m) for its Ugandan assets, the first move in a portfolio management programme aiming to raise $1bn.
Shares in the firm jumped 25 per cent this morning on the back of the announcement.
The move will provide the firm with some much needed relief after a 12 month period in which its market capitalization shrank by roughly 90 per cent.
Even before the coronavirus pandemic, Tullow had announced plans to shrink its workforce by a third.
In addition, the current volatility in the oil and gas market has left many producers scrabbling to boost liquidity amid a record slump in demand.
Tullow’s executive chair Dorothy Thompson told Reuters that raising at least $1bn from divestments would eliminate the prospect of any debt-for-equity swap.
The announcement comes just days after it was revealed that Delonex chief executive Rahul Dhir would take over as Tullow’s chief executive.
The oil explorer has been without a chief executive since November, with Paul McDade stepped down due to the firm’s poor performance.
Thompson said: “This deal is important for Tullow and forms the first step of our programme of portfolio management.
“It represents an excellent start towards our previously announced target of raising in excess of US$1 billion to strengthen the balance sheet and secure a more conservative capital structure”.
Total chief Patrick Pouyanne said: “We are pleased to announce that a new agreement has been reached with Tullow for less than $2 a barrel in line with our strategy of acquiring long-term resources at low cost”.
Tullow making ‘the best of a bad situation’:
Nicholas Hyett of Hargreaves Lansdown said that Tullow had “done an excellent job making the best of a bad situation”:
“The Ugandan field has been problematic for some time, and realising some value up front would be welcome in any scenario.
“The cash reinforces the balance sheet ahead of what look to be some rocky times for the sector and there’s even scope for further payments if the oil price picks up”.
Tullow also said that it had achieved production of 75,800 barrels a day, in line with its guidance.
It also managed a price of $56 per barrel through the quarter due to its hedging positions, which is impressive considering the volatility.
Hyett said: “Meanwhile an extensive hedging programme has kept the group’s received oil prices well above the pretty ugly market price, and looks set to continue doing so for much of the next year.
“Further efforts to reduce costs have also yielded results and, as a result, Tullow looks better placed to weather the current market turmoil than many larger companies, at least in the short term.
“New CEO Rahul Dhir is taking over a business in much better health than anyone might have expected.”