African veteran’s devotion to Tullow stock may make him its saviour

Market Beat: Spurned Kerry take comfort as IFF-DuPont love-in gets off to shaky start

Tullow Oil, on track to be the worst-performing stock on the FTSE 350 in 2019, has the look these days of a company only a doting relative could love.

The explorer’s 64 per cent share slump in the past five weeks has come on the back of cuts to its oil output forecasts, unfortunate results from two oil prospects in South America, and the sudden departure of its chief executive Paul McDade and exploration boss Angus McCoss.

The extent of the drop sparked rumours in some quarters that founder Aidan Heavey, who stepped down from the board last year after more than three decades, may move with his new US private equity-backed $1 billion (€902 million) venture to snap up some of Tullow's battered stock.

But it’s someone else who has stepped forward.

“This is my baby,” African oil executive Samuel Dossou-Aworet told the Financial Times this week after it emerged that he had built up a stake of just over 7 per cent in Tullow.

Followers of the Tullow story will know the name. The Benin native co-founded a pan-African exploration company called Energy Africa in 1994, which was acquired by Tullow Oil 15 years ago for $500 million (€448 million).

The transformational deal doubled the size of Tullow at the time, giving it assets along the west coast of Africa, including Ghana, where the company would find its two largest oil fields: Jubilee and TEN, sources of much of the market’s disappointment this year.

Part payment

The 75-year-old disclosed that he was already a top-15 shareholder before this week’s buying, which would have put his stake at between 1.9 per cent and the 3 per cent threshold where a shareholder must declare their position. He had taken Tullow shares as part payment for the Energy Africa deal in 2004, leaving him with an historic holding that was already a multiple of Heavey’s 0.6 per cent.

Dossou-Aworet, co-founder and chair of African petroleum company Petrolin Group, has said that he plans to advise Tullow rather than dictate to it – and that he has no immediate plans to add to his holding. But his newfound position as the company's largest shareholder may afford him considerable influence at a time when it is looking for a new chief executive.

In fairness, few would be as familiar as the businessman with Jubilee and TEN, Tullow’s main producing assets, which have been the subject of a series of production forecast downgrades this year. Jubilee, discovered in 2007 and which started producing in 2010, has been affected by mechanical issues in recent times. TEN, which started production in 2016, has suffered from delays in the drilling of fresh wells.

Group production for 2019, forecast at the start of this year at an average of 98,000 barrels of oil per day (bopd), is set to come in at 87,000 bopd. It’s projected to fall to between 70,000 and 80,000 bopd in 2020 and average about 70,000 bopd for the following three years.

Contrarian

Dossou-Aworet counts as something of a contrarian as Tullow has suffered from a raft of stock and credit rating downgrades in the past two weeks.

“The significant downward revision in Tullow’s projected production will lower its future cash-generating and debt-reduction capacity,” Moody’s said as it pushed its rating on the company’s creditworthiness further into junk-status territory. “This will, in turn, reduce the group’s financial flexibility to grow and diversify its production profile.”

The HSBC analysts said earlier this week that Tullow, which has managed to reduce its debt burden in recent years with the help of a £600 million (€705.5 million) shareholder cash call in early 2017, will probably see its deleveraging accomplishments reversing in 2020.

For Dossou-Aworet, however, blood is proving to be thicker than oil. He told the FT that he wanted Tullow to become a pan-African champion and that he believed it would recover from its share price collapse. A case of blind familial devotion?

Kerry rival sees shares slump

Kerry Group chief executive Edmond Scanlon could be forgiven for feeling a little sore this week after narrowly missing out on a merger deal that would have more than doubled the group in size.

Kerry, with a market value of €20 billion, had been widely seen for two months as the leading bidder for US chemical group DuPont’s nutrition and biosciences division. However, it was pipped at the post last Sunday by New York-based International Flavors & Fragrances’ (IFF) $26.2 billion mainly stock-based offer for the business.

The love-in between executives on both sides of the deal was palpable on an analysts' call on Monday. "We think the same, our [research and development] machine is kind of the same, the way we go about and the way we focus on our customers," said DuPont executive chairman Edward Breen. "The two teams get along and obviously know each other from the industry and that cultural fit becomes really important to us."

IFF's shareholders think otherwise – mindful, no doubt, of how the company's $7.1 billion takeover of Israeli flavour and ingredients company Frutarom has failed so far to live up to bullish targets. IFF's stock slumped 10 per cent on Monday, wiping $2 billion off the value of the deal for DuPont shareholders.

It has slumped 14 per cent since it first emerged earlier this month that IFF was giving Kerry a serious run for the DuPont unit.

Might that take a bit of the sting out of the rejection for Scanlon?