{"id":5397,"date":"2016-11-15T08:30:52","date_gmt":"2016-11-15T08:30:52","guid":{"rendered":"http:\/\/www.oilnewskenya.com\/?p=5397"},"modified":"2017-01-24T15:29:55","modified_gmt":"2017-01-24T15:29:55","slug":"tullow-oil-needs-to-unlock-value-in-kenya-with-a-farm-out-broker","status":"publish","type":"post","link":"https:\/\/www.oilnewskenya.com\/index.php\/tullow-oil-needs-to-unlock-value-in-kenya-with-a-farm-out-broker\/","title":{"rendered":"Tullow Oil needs to unlock value in Kenya with a farm-out – broker"},"content":{"rendered":"

Source: ProactiveInvestors<\/a><\/p>\n

Tullow’s partner banked nearly half a billion from a farm-out earlier this year, and Numis says a similar deal could help Tullow fix its balance sheet.<\/p>\n

Tullow Oil plc\u00a0needs to do good business over its East African assets, according to City broker Numis, which sees the share going higher but is sticking to a \u2018hold\u2019 recommendation for now.<\/p>\n

Whether or not Tullow secures farm-out deals for assets in Kenya and Uganda will be major factors in the outlook for the oil firm\u2019s balance sheet, says Numis analyst Thomas Martin.<\/p>\n

\u201cWe see a considerable improvement in Tullow’s balance sheet if deals can be agreed on terms similar to our modelling, indeed our analysis shows the potential for East Africa to become a source, rather than a use of cash,\u201d he said in a note.<\/p>\n

Africa Oil, Tullow\u2019s partner in Kenya, has already demonstrated a possible blueprint as back in February it agreed a farm-out with Maersk which delivered some US$427mln to the Toronto listed oiler.<\/p>\n

That deal saw Africa oil halve its interest in blocks 10BB, 13T and 10BA in Kenya \u2013 where discoveries in the Locichar basin amount to an estimated 750mln barrels of recoverable resources \u2013 and Tullow still retains its original 50% stake in the project.<\/p>\n

But, as the portfolio currently stands the Martin doesn\u2019t believe Tullow will have the financial wherewithal to make the most of its discovered resources.<\/p>\n

\u201cWhilst there is upside to our 280p\/share discovered resource NAV assuming no farm-outs, developing the portfolio at current interests will exert too much pressure on the balance sheet making this unachievable,\u201d he added.<\/p>\n

Farm-outs, if done, can however \u2018restore balance sheet resilience\u2019 according to Martin. Longer term, meanwhile, he continues to see value-adding potential within the Tullow business.<\/p>\n

\u201cTullow retains an enviable exploration opportunity set and the recent industry hiatus provides an opportunity for low cost technical work to be completed to refresh the prospect inventory.<\/p>\n

\u201cFuture exploration programs are likely to be more targeted with fewer wells, aiming for a higher chance of success. The reduction in industry costs enables higher levels of activity for a given level of investment.\u201d<\/p>\n

He notes that exploration drilling is scheduled to restart soon in Kenya, and Tullow is also expected to drill a high impact well offshore Suriname during 2017.<\/p>\n

A four-well exploration programme is due to start in the Lokichar basin during December, and Tullow said last week that it was targeting an \u2018early oil pilot scheme\u2019 to come on stream (producing some 2,000 bopd, which would be trucked to market) by mid-2017 whilst planning for a full field development continues.<\/p>\n

Meanwhile the company at the same time told investors that good progress was being made on upstream dev elopement in Uganda, where production licences have been awarded and front end engineering and design (FEED) contracts are expected to be dished out in the New Year.<\/p>\n

Numis rates Tullow as \u2018hold\u2019 and has today increased its target price to 260p per share.<\/p>\n

The broker highlights that Tullow is \u2018extremely\u2019 leveraged to the crude oil price, noting that a US$10 increase in long term oil prices (from US$60 to US$70 per barrel) would see the broker\u2019s value jump 70% up to 321p.<\/p>\n

That said, Numis also sees a \u2018premium rating\u2019 for Tullow\u2019s shares and comparatively the broker prefers Nostrum Oil & Gas and\u00a0Genel Energy PLC\u00a0 which it says have greater upside to their valuations.<\/p>\n

The upside for\u00a0Cairn Energy\u00a0Plc and\u00a0Soco International\u00a0Plc are similar to Tullow Oil, the broker added.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: ProactiveInvestors Tullow’s partner banked nearly half a billion from a farm-out earlier this year, and Numis says a similar deal could help Tullow fix its balance sheet. Tullow Oil … Read More<\/a><\/p>\n","protected":false},"author":24,"featured_media":4243,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[6],"tags":[70,5542,4566,671,5541,1252,1445,3909,5540,5539,2340,2571,2603],"class_list":["post-5397","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news-by-others","tag-africa-oil","tag-cairn-energy-plc","tag-early-oil-pilot-scheme","tag-east-africa","tag-genel-energy-plc","tag-kenya","tag-lokichar-basin","tag-maersk-oil-and-gas","tag-nostrum-oil-gas","tag-numis","tag-soco-international-plc","tag-tullow-oil","tag-uganda","entry"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.oilnewskenya.com\/wp-content\/uploads\/2016\/01\/Tullow-Oil.jpg?fit=699%2C466&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p5JWkQ-1p3","jetpack-related-posts":[{"id":9387,"url":"https:\/\/www.oilnewskenya.com\/index.php\/uganda-tullow-completes-575-million-sale-of-uganda-assets-to-total\/","url_meta":{"origin":5397,"position":0},"title":"UGANDA: Tullow completes $575 million sale of Uganda assets to Total","author":"","date":"November 10, 2020","format":false,"excerpt":"Tullow Oil\u00a0 has announced that the sale of its assets in Uganda to Total has completed with $500 million consideration received earlier today. 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