Tullow Oil shares fall on back of rating downgrades
Published 04/05/2016 | 02:30
Shares in Anglo-Irish exploration firm Tullow Oil fell by as much as 12pc yesterday as both Goldman Sachs and Macquarie downgraded their ratings of the company.
The fall comes off the back of a period of strong growth for the Irish and London-listed firm. Goldman Sachs downgraded Tullow to a neutral rating from buy, citing risks associated with planned expenditure in Africa. Goldman Sachs fears investment in two new pipelines will eat into the firm's free cash flow from 2018. As a result the bank cut its price target to £2.74 (€3.46) from £3.05.
Shares in Dublin experienced a similar fall in value, sliding by over 10pc to €3.20 yesterday. In a note to investors Goldman said Tullow has underperformed since being added to the buy list last April.
"We believe this is broadly as a result of falling oil prices and exceptional beta to the oil price," the firm said.
Goldman said Tullow's equity has "exceptional sensitivity" to changes in oil prices and that a $10 change in price per barrel would have around a 40pc impact on its target price.
In March the company's floating production storage and offloading (FPSO) vessel Kwame Nkurmah was placed on heading control after its turret bearing was damaged.
However, Goldman doesn't expect the turret bearing to have too much of an effect. "While we believe the turret problem at Jubilee will reduce production in 2016, we expect it to be covered by insurance. As a result, we do not expect a financial impact," Goldman said in a note.
Fellow investment bank Macquarie also cut its rating of Tullow, down to neutral from outperform but increased its price target to £2.92 from £2.64.
Share prices in Tullow have enjoyed a steady increase since the start of the year and are up almost 50pc so far. Yesterday's fall in share price follows a very strong week for the firm where prices rose by 16.2pc and hit a nine-month high last Thursday.