Business Irish

Monday 27 March 2017

Tullow shares rally but analysts fear that oil price could fall to $10

Brent crude has slipped to a fresh 12-year low of $30.41 a barrel. Photo: Reuters
Brent crude has slipped to a fresh 12-year low of $30.41 a barrel. Photo: Reuters

Paul O'Donoghue

Shares in Irish-listed Tullow Oil rose strongly yesterday after the explorer said it is planning to cut capital expenditure and has preserved revenues with its hedging policy.

However, the view was more somber for the rest of the exploration sector as some analysts predicted that oil could fall as low as $10 a barrel.

Shares in Tullow Oil were trading at 135.88 pence on the London stock exchange by mid-afternoon yesterday, up over 10pc on Tuesday's close.

However, the shares are still down by about 90pc since 2012 after sliding to an 11-year low on Tuesday. The company, along with many others in the exploration sector, has seen its value plummet in the face of falling oil prices which hit 12-year lows of nearly $30 a barrel this week.

Despite the falling prices Tullow said in a bullish trading update yesterday it expects to deliver revenues of $1.6bn (€1.4bn) and gross profits of $600m in 2015.

It said more than half of its current daily production is hedged at about $75 per barrel, helping it maintain turnover in the face of low oil prices.

Although this is in line with market expectations it still marks a significant drop compared to 2014 when the firm reported $2.21bn in revenues and $1.1bn gross profit.

The company is slashing capital expenditure, which is being reduced from $1.7bn in 2015 to $1.1bn in 2016, and also estimated that it has financial headroom of $1.9bn.

However, the firm estimated total write-offs could amount to more than $900m as it made efforts to cut its exploration costs.

Production averaged 66,000 barrels of oil per day (bopd) during 2015, within the company's guidance, and is forecast to grow to to an average between 73,000 and 80,000 bopd as its TEN field in Ghana is set to produce oil by the summer.

Chief executive Aidan Heavey said Tullow expects to produce "around 100,00 barrels per day in West Africa in 2017".

Although analysts and investors reacted positively to the announcement, trading conditions are likely to remain tough for Tullow in the near future as British bank Standard Chartered became the latest major bank to downgrade its oil outlook, in its case to $10.

Brent crude has slipped to a fresh 12-year low of $30.41 a barrel, while West Texas Intermediate - the US benchmark - is trading at $29.93. Standard Chartered said there was no bottom in sight until "money managers in the market conceded that matters had gone too far".

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