We don’t support this browser anymore.
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 Oil - first half production in line with guidance

Sophie Lund-Yates, Equity Analyst | 14 July 2021 | A A A
Tullow Oil - first half production in line with guidance

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: 42.20 | Buy: 42.36 | Change 0.52 (1.25%)
Chart View factsheet

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

Tullow expects half year revenue of around $700m, reflecting production of 61,200 barrels of oil per day (bopd) - in line with expectations - and a realised oil price of $58 a barrel.

Asset sales and first half delivery means full year production guidance has been lowered to 55,000 - 61,000 bopd, from 60,000 - 66,000.

More detailed half year results are expected on 15 September.

The shares rose 2.0% in early trading.

View the latest Tullow oil share price and how to deal

Our View

Recent times have been unrelentingly tough for Tullow.

An oil price crash of epic proportions, and exploratory wells coming up empty, culminated in a plummeting share price and questions raised about the group's ability to honour its debt payments.

To that end, the successful debt refinancing is a crucial milestone which gives Tullow a chance to regroup. Multiple asset sales have given a much needed boost to cashflows too, and together with cost cutting means the balance sheet's in much better condition.

Production forecasts appear to have stabilised as well, and over 50% of the next half's production is hedged - which helps put a floor under the price it receives for its oil. In fact the group now reckons it can be comfortably cash flow positive with oil prices of $60 a barrel, well below today's $76.15 a barrel. All-in-all, Tullow is on a more stable footing and the question now turns to one of delivery.

That could be hindered by the fact that the drive for greater efficiency has come at a price. Capital expenditure was 41.2% lower in 2020 than a year earlier, and the target's been cut again. Under-investing for a sustained period risks damaging the business's long-term prospects, since oil that's pumped today must ultimately be replaced with new reserves if the group is to have a future. This hasn't caused any glaring issues so far, but it's something to keep an eye on.

Growth in the mature Ghanaian oil fields should be relatively steady, although there are no guarantees. The more important update will be from Kenya. A total redesign has been done, and the technical work complete, but so far we've little indication about what these assets could mean for the group's fortunes. The market is likely to react to the project update, good or bad, which is expected in the coming months.

Even assuming the short term financial hurdles are cleared, Tullow faces a difficult future. The oil & gas industry looks set for massive disruption in the years ahead - as the rise of renewables hits market demand and investors give environmentally unfriendly companies the cold shoulder. That will likely leave smaller, debt laden producers, like Tullow, at the mercy of an uncertain market.

Tullow Oil key facts

  • Price/earnings ratio: 11.4
  • Ten year average Price/earnings ratio: 14.1
  • Prospective dividend yield (next 12 months): 0.0%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Sign up for updates on Tullow Oil

Half year trading update

In Ghana, production at the Jubilee oil field was better than expected, averaging 70,600 bopd, or 25,100 on a net basis. At the TEN oil field, gross production reached 37,000 bopd. FPSO (''Floating production storage and offloading'' vessels used to extract and store oil), was up and running over 98% of the time.

The first Jubilee producer is doing slightly better than pre-drill expectations. New wells mean average production from Jubilee is expected to increase in the second half.

Net production of 18,800 bopd was in line with expectations in Tullow's non-operated division. The group has re-allocated some capital expenditure to accelerate the Simba expansion development in Gabon, following asset sales. The Kenya project has been fully redesigned, and an update is expected in the second half.

The group said it has hedges in place for 51% of forecast production.

Capital expenditure was $100m, and underlying operating cash flow is expected to come in at around $200m for the first half.

Tullow completed the sales of its Equatorial Guinea assets and the Dussafu Marin permit in Gabon to Panoro in March and June for around $133m. The group could also receive cash payments up to $40m, depending on asset performance and oil price.

The group has refinanced its debt. Tullow issued $1.8bn in bonds with a maturity date in five years, and also arranged a new $500m revolving credit facility. Net debt was around $2.3bn as at the end of June 2021.

Full year capital expenditure guidance has been lowered to $250m, from $265m. That's largely because of the asset sales. If oil prices are $60 per barrel for the rest of the year, full year underlying cash flow should be around $600m.

A Final Investment Decision for the Lake Albert Development in Uganda is expected, which would result in a $75m payment to Tullow from Total.

Find out more about Tullow shares including how to invest

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.