Thursday 22 June 2017

Hedge funds take €120m bet as they go short on Aidan Heavey's Tullow Oil

Last week, Tullow Oil shares bounced up after the company's banks left loan agreements unchanged following an update on the oil explorer's reserves
Last week, Tullow Oil shares bounced up after the company's banks left loan agreements unchanged following an update on the oil explorer's reserves
Nick Webb

Nick Webb

Four major hedgefunds and institutional investors have disclosed short positions in Aidan Heavey's Tullow Oil, as they bet that the Africa focussed oil company's share price will fall further.

In the last two weeks, Oxford Asset Management, Worldquant, Man Investments and Capital Fund Management have all reported short positions, according to Bloomberg data. Lansdowne Partners UK, has also held a short position in Tullow for over a year.

The investors have made a €120m bet that Tullow's share price will drop. Tullow declined to comment - but market sources indicated that a number of the oil company's peers had been targeted by hedgefunds and other institutions, which have taken short positions, betting that the weak oil prices will drag share prices down further.

Around 7.43pc of Tullow's stock is being held by institutions with short positions.

Tullow's share price trebled from 2008 to 2012 as it brought home a series of major oil finds in Africa. The company was also linked with takeovers by a number of oil majors, including Shell and the Chinese state oil company CNooC.

However, since its peak in early 2012, Tullow's share price has fallen from stg£15.66 down to a low of stg£1.69 last month.

Shares in Tullow Oil fell more than 50pc in the third quarter, the steepest quarterly loss on record, as oil slumped to a six-year low and fears about the strength of the global economy wiped almost $11 trillion off global equity markets.

Last week, Tullow Oil shares bounced up after the company's banks left loan agreements unchanged following an update on the oil explorer's reserves. Tullow's lenders maintained credit lines following the evaluation of reserves, which the firm said demonstrates their continued support despite a period of low oil prices.

Tullow's available debt capacity remained unchanged at $3.7bn (€3.31bn) following a routine six-month review of its reserve-based lending. Shares of the company climbed as much as 13pc after the result was announced - the biggest one-day gain in four years.

Tullow's debt levels have also concerned investors. Net debt stood at $3.6bn in the first half, equivalent to 94pc of its total equity.

"Investors are mostly concerned about debt, the fear of a rights issue and the ability to fund growth," said Kate Sloan, an analyst at Macquarie Bank, who increased the company's target price to stg£2.42 from stg£2.39 on September 29.

"It's the same for all those leveraged explorers and producers, there are worries about debt levels for all of them," she said.

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