INTERVIEW: Tullow CEO promotes transformation after $1.8 billion refinancing

London — Tullow Oil's recent move to refinance its debt with a major bond placement gives the struggling explorer a new lease of life and allows it to focus on producing assets and capital discipline, CEO Rahul Dhir has told S&P Global Platts.

The $1.8 billion placement is the largest offering in Tullow's history and allows the debt-laden independent to avoid a more costly debt-for-equity swap, Dhir said.

"It gives us the runway, in essence, to deliver on the business plan and so it is quite a transformational step," he said in the May 7 interview. "It puts the company on a very stable footing."

Dhir also said the London-listed company hopes to play a larger role in Africa as energy majors start to exit mature assets.

The cash-strapped company recently adopted a new strategy focused almost solely on growing its Ghanaian assets, while scaling down exploration in other frontier basins.

The explorer, which has previously relied on reserves-based lending, has endured a difficult few years of operational and production setbacks.

Dhir took over at a tough time for Tullow, in July 2020, and decided to focus on the company's productive assets and to rationalize its portfolio, to cut its $3 billion debt.

Dhir said the bond launch would help simplify the company's capital structure, after the previous reliance on reserves-based lending.

Last year Tullow also closed the sale of its Ugandan assets to Total after a tax dispute had delayed the $575 million deal.

Tullow commenced a multiyear, multi-well drilling campaign at its flagship fields offshore Ghana last month. Dhir said the bond offering meant those long-term drilling plans now become a "reality."

Tullow started drilling the first well at the Jubilee field on April 5 after almost a year's hiatus as the COVID-19 pandemic and the oil price crash brought the upstream industry to a standstill.

"Our exploration strategy is about using our geoscience expertise to add value where we are producing," he said.

This, however, comes amid a fall in crude output for the company. Tullow's 2021 oil production is expected to slide by up to 20% from last year, when it pumped 74,900 b/d. The company is guiding for 60,000-66,000 b/d this year, which would be its lowest in more than a decade. The decline has been attributed to a lack of drilling last year and a planned shutdown at Jubilee.

Dhir said Tullow hopes to drill three to four wells every year as it still has a long inventory of wells in Ghana.

The drilling rig Maersk Venturer, which has been contracted for four years, is expected to drill four wells in 2021, comprising two Jubilee production wells, one Jubilee water injector and one gas injection well at the TEN (Tweneboa Enyenra Ntomme) fields. A new rig is expected to reach Ghana in 2023, Dhir added.

Tullow has so far only produced around 14%, or 393 million barrels, of the estimated 2.8 billion barrels in place at its Ghanaian fields, which is why it is pinning its hopes on already existing assets.

Dhir also said the company had no immediate plans to sell more assets. "We kind of drew a line on that back in March," he said, referring to a $180 million sale of assets in Equatorial Guinea and Gabon to Africa-focused Panoro Energy.

Credible transition

Independents are expected to increase their presence in Africa in the coming years as energy majors start to divest. This provides Tullow with a lot of opportunities in the energy transition, given its "proven track record", Dhir said.

The one constant for independents is "we do things that the majors don't," Dhir added. "In a sense, our destiny is to occupy the white space that the big boys leave behind. And that white space changes over time."

"It just so happens... that the skills that are needed for us to make money from our own assets and to bring them up to high standards from an ESG perspective are the same skills that are relevant in the space that exists today," he said.

The changes in Tullow's business and refinancing strategies also reflect the new dynamic on the oil market,

"We are trying to be on the leading edge of that," Dhir added. "The fact that we are replacing banks with bonds is a leading indicator because European banks especially are getting out of the oil and gas business."

Tullow recently set itself the goal of net-zero emissions by 2030, covering Scope 1 and 2 emissions resulting directly from its operations, as it banks on decarbonizing its Ghana assets.

"We are in a quiet way ahead of the curve because the industry is here to stay but it is going to be run by different people. It is going to be financed by different people. It is going to have a different priority on ESG," he said.