It looks like your browser is not up to date.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Tullow - back in the black

George Salmon | 13 February 2019 | A A A
Tullow - back in the black

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Tullow Oil plc Ordinary 10p

Sell: 60.02 | Buy: 60.26 | Change -1.20 (-1.95%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Tullow has announced 2018 results in line with the guidance given in January. Revenue was $2bn, after tax profits were $85m and free cash flow of $411m. Net debt continues to fall.

The group also announced a dividend, of $0.048 per share, and confirmed agreements have been reached around the capital gains tax liability for its farm down in Uganda.

The shares rose 2.3% on the news.

View the latest share price and how to deal

Our View

Just two years after a rights issue was needed to shore up the balance sheet, things seem to be looking up. Tullow is back in the black and management are confident the group can pay a dividend and shift the debt that's been the monkey on Tullow's back.

With production set to rise, operating costs dropping to just $10 per barrel and an agreement reached over tax obligations in Uganda, it's easy to see where that confidence comes from. But there is such a thing as over-confidence.

The twin tailwinds of increasing production and a rising oil price won't blow this strongly forever, and borrowing's still a little higher than we'd like. That means the company's uncomfortably exposed to a reversal in oil prices (which have been looking rocky recently).

The group also needs to also replace existing reserves. Tullow probably spent less than it would like over the last few years while it fought to keep its head above water, so we're not surprised to see the group increasing investment in new projects.

Fortunately, the company has an excellent track record with the drill bit. Progress in the East African portfolio looks promising, with Ugandan and Kenyan assets in the early stages of development. The group has also added acreage in Cote d'Ivoire and Peru, with millions invested in exploration work around the world. These early stage assets are speculative but have the potential to generate significant upside.

Nonetheless, Ghana will remain the driving force for years to come, with further development of those fields expected to increase output significantly next year.

Tullow deserves credit for its exploration success, as well as its development achievements. A recovering oil price has dramatically increased the value of past successes, and its expertise are a catalyst for future performance.

A $100m a year dividend suggests shareholders could be in line for a 2.6% dividend yield going forwards, perhaps more if all goes well. Investors should remember there are no guarantees though, especially with the group's success closely tied to the ups and downs of the oil price.

Register for updates on Tullow Oil

Trading details

A 17.5% increase in net realised prices, to $68.50 per barrel, more than offset the impact of a damaged turret in the Jubilee field, which saw production fall 5% to 90,000 boepd. Total revenue, including insurance payments, rose 8.6%.

Operating profit rose sharply to $528.4m, but tax and interest costs limited net profit to $85.4m, against a loss of $175.3m last year.

Tullow's net debt has fallen from $3.5bn to $3.1bn. Together with rising profits, that helped the ratio of net debt to cash profits, net of exploration costs (as measured by EBITDAX), fall from 2.6 to 1.9.

The majority of production came from the TEN and Jubilee sites in West Africa. Recent drilling progress has been good and the remediation work on the damaged turret is due to complete shortly. Tullow expects net production of 39,000 bopd from TEN (up c.30%) and 34,000 bopd from Jubilee (up c.23%). Total production will be between 94,000-102,000 boepd.

In Uganda, Tullow's JV partners expect a Final Investment Decision in 2019. The group anticipates a FID on the Kenyan developments later in the year, with First Oil in 2022.

Net capital expenditure rose from $225m to $423m. Looking ahead, the group expects to spend $570m in 2019, including around $250m in Ghana and $70m in Kenya.

Find out more about Tullow shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.