Tullow drilling in spotlight after mixed 2012

Updated 12 January 2013
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Tullow drilling in spotlight after mixed 2012

LONDON: Tullow Oil Plc has a record 49 wells planned this year, and drilling engineers due to deliver news by February are under pressure after a disappointing trading update from the Africa-focused company yesterday.
After a mixed year for one of the industry's best performing drillers of recent times, Tullow's output guidance for 2013 at 86,000-92,000 barrels of oil equivalent per day (boepd) came in below some analysts' forecasts, and its 2012 output at 79,200 boepd undershot company guidance.
In addition, parts of the update on drilling in Uganda and Kenya were more cautious than some analysts had hoped from Europe's largest oil and gas exploration and production company outside the industry's integrated giants.
Tullow's shares, which have tripled since 2007 while peers have flatlined, fell 5.3 percent to 1,160 pence by 1135 GMT.
But finance director Ian Springett said the company's view of its east African assets was unchanged and stressed that exploration, not production, remained Tullow's driving force, with a record 49 wells to be drilled during the year.
He said the negative Ugandan well results were establishing the margins of the basin and were relatively low cost, while in Kenya "it's very, very early days."
"We need to drill a lot more wells in Kenya before we really understand where are the best locations and what the flow rates are," he said. "We have a very large exploration program active in a number of countries with some basin opening potential in a number of them. It's a big and wide program."
The company said it would continue to focus on "high value oil and early monetization" in its exploration-led growth strategy - selling assets where it has found oil relatively early in the development and production process.
Some investors have begun to worry it is losing that focus, especially since December last year when it bought Norwegian driller Spring Energy, and attendees at a Macquarie investment conference this week expressed a desire to see it maintained.
Out of the more than 30 who responded, 65 percent said Tullow should avoid getting sucked into a production target structure, and err on the side of early sell-out.
Macquarie analyst Mark Wilson tagged Tullow shares as underperform early last year, and other analysts have moved in that direction since.
"While still a best-in-class explorer, we see ongoing challenges for Tullow as it continues to seek the right balance between the "E" (exploration) and "P" (production) sides of its portfolio," said Brian Gallagher of Investec, who rates the stock a sell, in a research note on Friday.
Analysts at Charles Stanley yesterday downgraded the stock to hold from accumulate.
In Kenya and Ethiopia, Tullow said it was expecting a result from its high-risk PaiPai-1 well in February and a flow rate test completion at its Twiga-South-1 well it shares with Africa Oil in the same month. The flow rate from the Twiga-South-1 test is unlikely to be more than 500 barrels a day, it said. Drilling on the Sabisa-1 well in the South Omo block in Ethiopia is expected to commence within the next two weeks.
In Uganda, Riwu-1, Raa-1 and Til-1 did not encounter commercial hydrocarbons, Tullow said, but extensive further drilling in partnership with operator Total is planned for 2013.
At another important prospect in French Guiana, drilling at Priodontes-1 (GM-ES-3) adjacent to the already drilled Zaedyus prospect started at the end of December 2012, and is expected to continue for four to five months, Tullow said. Zaedyus-1 was encouraging last year but Zaedyus-2 found no commercial quantities of oil, news that hit Tullow's shares in December.
Tullow has long targeted 120,000 barrels a day of output at its Jubilee field in Ghana, and had once hoped to reach that by 2011. The company said it was now producing 110,000 barrels a day "therefore allowing the current FPSO (floating production, storage and offloading vessel) capacity to be tested over the coming weeks." Analysts said this was good news.
Last year Tullow raised $2.9 billion by selling part of its Uganda franchise to Total and China's CNOOC.
Tullow is trying to sell more assets to help finance its capital expenditure program which is expected to total $2 billion in 2013, up from $1.9 billion in 2012, but it had no firm news on disposals in its trading update.


Gulf companies challenged by debt and rising interest rates

Updated 22 April 2018
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Gulf companies challenged by debt and rising interest rates

  • Debt restructurings on the rise, but below crisis levels
  • Central Bank of the UAE has raised interest rates four times since last March

There has been an uptick in recent months in heavily-borrowed companies in the Gulf seeking to restructure their debts with lenders. Although the pressure on companies is not comparable to levels witnessed in the region following the 2008 global financial crisis, rising interest rates will eventually begin to have a greater impact, say experts.
Speaking exclusively to Arab news, Matthew Wilde, a partner at consultancy PwC in Dubai, said: “We do expect that interest rate increases will gradually start to impact companies over the next 12 months, but to date the impact of hedging and the runoff of older fixed rate deals has meant the impact is fairly muted so far.”
The Central Bank of the UAE has raised interest rates four times since the start of last year, in line with action taken by the US Federal Reserve. The Fed has signalled that it will raise interest rates at least twice more before the end of the year.
Wilde added that there had been a little more pressure on company balance sheets of late, although “this shouldn’t be overplayed”.
Nevertheless, just last week, Stanford Marine Group — majority owned by a fund managed by private equity firm Abraaj Group — was reported by the New York Times to be in talks with banks to restructure a $325 million Islamic loan. The newspaper cited a Reuters report that relied on “banking sources”.
The Dubai-based oil and gas services firm, which has struggled as a result of the downturn in the hydrocarbons market since 2014, has reportedly asked banks to consider extending the maturity of its debt and restructuring repayments, after it breached certain loan covenants.
A fund managed by Abraaj owns 51 percent of Stanford Marine, with the remaining stake held by Abu Dhabi-based investment firm Waha Capital. Abraaj declined to comment.

 

Dubai-based theme parks operator DXB Entertainments struck a deal last month with creditors to restructure 4.2 billion dirhams ($1.1 billion) of borrowings, with visitor numbers to attractions such as Legoland Dubai and Bollywood Parks Dubai struggling to meet visitor targets.
Earlier this month, Reuters reported that Sharjah-based Gulf General Investment Company was in talks with banks to restructure loan and credit facilities after defaulting on a payment linked to 2.1 billion dirhams of debt at the end of last year.
Dubai International Capital, according to a Bloomberg report from December, has restructured its debt for the second time, reaching an agreement with banks to roll over a loan of about $1 billion. At the height of the emirate’s boom years, DIC amassed assets worth about $13 billion, including the owner of London’s Madame Tussauds waxworks museum, as well as stakes in Sony and Daimler. The firm was later forced to sell most of these assets and reschedule $2.5 billion of debt after the global financial crisis.
Wilde told Arab News: “We have seen an increasing number of listed companies restructuring or planning to restructure their capital recently — including using tools such as capital reductions and raising capital by using quasi equity instruments such as perpetual bonds.”
This has happened across the region and PwC expected this to accelerate a little as companies “respond to legislative pressures and become more familiar with the options available to fix their problems,” said Wilde.
He added that the trend was being driven by oil prices remaining below historical highs, soft economic conditions, and continued caution in the UAE’s banking sector.
On the debt restructuring side, Wilde said there had been a “reasonably steady flow of cases of debts being restructured”.
However, the volume of firms seeking to renegotiate debt remains small compared to the level of restructurings witnessed in the aftermath of Dubai’s debt crisis.
Several big name firms in the emirate were caught out by the onset of the global financial crisis, which saw the emirate’s booming economy and real estate market go into reverse.
State-owned conglomerate Dubai World, whose companies included real-estate firm Nakheel and ports operator DP World, stunned global markets in November 2009 when it asked creditors for a six-month standstill on its obligations. Dubai World restructured around $25 billion of debt in 2011, followed by a $15 billion restructuring deal in 2015.
“We would not expect it to become (comparable to 2008-9) so barring some form of sharp external impetus such as global political instability or a protectionist trade war,” said Wilde.
Nor did he see the introduction of VAT as particularly driving this trend, but rather as just one more factor impacting some already strained sectors (e.g. some sub sectors of retail) “which were already pressured by other macro factors.”

FACTOID

Four

The number of interest rate rises in the UAE since March 2017.