Tullow's (TUWOY) Free Cash Flows Surpass 2023 Guidance
Tullow Oil plc TUWOY, an exploration and production company based in Europe, recently released an update on its performance in 2023. The company also released its outlook for 2024. It will declare full-year 2023 results in March.
Operational and Financial Highlights of 2023
In a statement prior to the full-year results, the company declared that its full-year working interest production averaged 63 thousand barrels of oil equivalent per day (kboepd), including 6 kboepd of Jubilee Gas.
The Jubilee facility faced water injection issues in 2023. These issues have been resolved, according to the latest updates. Despite some setbacks, TUWOY reported outstanding drilling performance with four Jubileeproduction wells and three Jubilee water injection wells coming online, and a significant increase in Jubilee production, which surpassed 100 kboepd after the start-up of Jubilee South East.
The company continues its portfolio optimization efforts with the sale of the Orinduik license in Guyana. TUWOY plans to continue focusing on core production assets.
The upstream player generated $1.6 billion in revenues in 2023, 25% higher than $1.28 billion in the previous year. The average realized oil price was $77.5 per barrel (post-hedging). The revenues also include hedging costs of around $140 million.
For 2023, capital expenditures were quoted at $380 million. The company generated free cash flows of $170 million, which surpassed the guidance.
The company reduced net debt by $250 million, ending the year with $1.6 billion net debt. Gross debt was reduced $400 million through tenders of the 2025 and 2026 notes and annual amortizations.
The company secured a $400 million debt facility with Glencore as a part of its refinancing strategy. It was also engaged in the commercialization of Ghana gas through an interim sales agreement generating around $30 million in revenues.
Outlook for 2024
For 2024, the working interest production is expected to be in the range of 62-68 kboepd, including 7 kboepd of gas.
In 2024, five Jubilee wells are expected to come onstream, out of which three are production wells and the rest are water injecting wells. This means that the drilling activity will be completed approximately six months ahead of schedule.
Tullow and its joint venture partners plan to take a drilling break in Ghana, later in 2024. Jubilee’s production during the break will be maintained by the existing wells in production. The company also continues to effectively minimize the decline in production at the TEN fields.
TUWOY has forecasted 2024 capital expenditures of $250 million. Approximately 60% of this figure will be allotted to Jubilee, whereas 25% is earmarked for non-operated assets.
The company has set up the hedge portfolio to protect 60% of the forecasted sales volumes at a price of $58 per barrel on average. Once the legacy hedges expire, it anticipates significant exposure to oil price upside from June. Reflecting on the previous statement, Tullow has fixed 20% of sales volumes at $114 per barrel during June-December.
According to a representative at Tullow, the firm is progressing toward its target of generating $800 million free cash flows over the 2023-2025 period, with more than $600 million free cash flows to be generated between 2024 and 2025 at an estimated price of $80 per barrel. The company also aims to conclude the year with a net debt of less than $1.4 billion.
In conclusion, TUWOY’s 2024 outlook seems positive with its plans to generate increased free cash flows and continued efforts toward reducing debt.
Zacks Rank and Key Picks
Currently, TUWOY carries a Zacks Rank #4 (Sell).
Investors might want to look at some better-ranked stocks in the energy sector, such as Vaalco Energy EGY, Enbridge ENB and Harbour Energy HBRIY. While Vaalco currently sports a Zacks Rank #1 (Strong Buy), Enbridge and Harbour Energy hold a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Vaalco Energy is an independent energy company involved in upstream operation business with a diversified presence in Africa and Canada. Having a large inventory of drilling locations in premium Canadian Acreage, the company’s production outlook seems bright.
Enbridge is an energy infrastructure company with a diversified portfolio of midstream assets. With a huge network of transportation and storage assets, the company derives stable fee-based revenues.
Harbour Energy is a leading independent oil and gas company, primarily involved in upstream operations. Upon completion of the recently announced acquisition of Wintershall Dea asset portfolio, Harbour’s estimated production will increase to 500,000 barrels of oil equivalent per day. The company has also done well in reducing its debt in the past year.
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