Tullow Oil (LON: TLW) shares have almost halved today after an arbitration tribunal ruled against the oil producer in its tax dispute with Ghana. Tullow, an independent producer whose output comes from the offshore Jubilee and TEN fields in Ghana, announced the ruling at 7am, before the market opened.
The shares were 9.93p at 11:46am, down 49.08% from yesterday’s close of 19.50p, after opening at 16.62p and touching a low of 9.26p. That takes them back to February levels and far below the 25p 52-week high reached in mid-September.
The International Chamber of Commerce tribunal found that a $196.5m corporate income tax assessment, the tax bill demanded by Ghana’s tax authority on business interruption insurance proceeds received in 2016 to 2019, does not breach Tullow’s petroleum agreements, its licence terms for the fields. It also ruled that 100% penalties fall outside those protections. Tullow said it was disappointed and will consider next steps after further engagement with the Ghanaian government.
Tullow’s announcement gives only the $196.5m figure. Ghana’s Finance Minister, Dr Cassiel Ato Forson, said in a statement that the tribunal upheld the full assessment of $393m once penalties are included, which would double the exposure. Tullow has not confirmed that figure.
Against that, on Monday Tullow reported net debt (borrowings minus cash) of $1.4bn, first-half free cash flow of $4m and full-year free cash flow guidance of $170m to $250m. The ruling statement says nothing on timing, provisioning or funding.
Broker Peel Hunt kept its buy rating and 24p target, calling the ruling a significant disappointment but noting Ghana’s government remains supportive of the oil and gas sector, which may give Tullow room in negotiations. Ghana’s Finance Minister struck a firm tone in his statement:
This outcome vindicates the position Ghana has maintained throughout: that every company operating in this country, regardless of its size, is subject to the laws of Ghana,
Dr Cassiel Ato Forson, Ghana Finance Minister
Ghana also says it wants to resolve outstanding tax matters with Tullow amicably. The outcome now rests on those talks, and Tullow has given no payment amount, timetable or funding plan, with an update promised in due course.