“One who deceives will always find those who allow themselves to be deceived”
- Niccolo Machiavelli
A 70% single day decline in share price.
For a multi-billion E&P, that’s a rare occasion.
On Monday, Tullow CEO Paul McDade stepped down. Tullow’s director for exploration, Angus McCoss did the same.
We presume that the board meeting (the one over the weekend that lead to their departures) went something along the lines of Dostoyevsky’s quote:
"If you can put the question, 'Am I or am I not responsible for my acts?' then you are responsible"
Dorothy Thompson, now Executive Chairman of Tullow’s BoD, will (at least initially) be the captain that tries to right the ship.
So… what happened?
Tullow had already cut output estimates by 14% this year. The 2020 output forecast was revised to 80k bpd, and ‘21-’23 are forecasted to be 70k bpd.
The drivers of Tullow’s issues are:
Operational & mechanical issues w/ the Jubilee & Enyenra Fields (in Ghana)
Delays in East African projects
Poor / heavy crude quality + high sulfur content in Tullow’s Guyana discoveries
Considering that Kosmos (Tullow’s partner in Ghana) was initially down 20% on the news, the market is clearly giving more weight to the production concerns.
All the while, Tullow’s Board noted that Independent Reserves Audits are to “remain broadly flat”.
Increasingly, the market’s view is that a reaffirmation of reserve audits is a sell signal -
Years ago, a friend of this newsletter - an executive from Repsol - told us “never trust Peronist - they lie, cheat, and steal”.
Politics is often a popularity contest. And handouts are a great way to win a popularity contest.
The Peronists have won 10/13 presidential elections. That takes a lot of handouts.
Words get invented - like “Re-nationalization”.
A democratic death spiral ensues.
Almost always, a revolution is the only way to change course…
…however, 4x yrs ago, the Argentine popularity contest was won, on the promise of taking back those handouts.
Former chairman of Boca Juniors.
An Argentine king of cool.
He was pro-business - opened up shale opportunities to international investment - and investors showed up, financing projects.
But the effort was in vain.
Today, Mauricio Macri leaves office.
For all his faults, his effort to do right by his country, both economically & democratically, should be commended.
Investors - if it’s not already too late - it’s time get out.
Or, you can roll the dice on the OED adding “re-re-nationalization” to the dictionary -
Brigham Minerals announced a public offering of common stock, and its shares promptly tanked.
The offering consists of:
6MM shares from Brigham
5MM shares from existing investors Warburg, Yorktown, & Pine Brook Road
The market cares about the latter - when existing investors jump ship this quickly after an IPO, the market tends to lose conviction.
Nobody wants to be a bagholder.
That said, this selling is probably more about the state of the US E&P sector, and not Brigham’s management / assets.
We don’t trade the minerals/royalties names, but if we did, we’d be looking into a dispersion trade -
Laredo announced a Bolt-On Acquisition
That’s it for today, we’ll be back on Friday -