Monday 28 May 2018

Tullow ploughs fresh 10-year lows ahead of trading update next week, stock worth a tenth of 2012 value

Tullow Oil's 10-year share history
Tullow Oil's 10-year share history
Gavin McLoughlin

Gavin McLoughlin

Shares in Tullow Oil have ploughed fresh 10-year lows this week ahead of the company's next trading update, to be issued on Wednesday.

Analysts are divided on the company's attractiveness but investors have piled out of the stock with oil continuing to plunge.

On Friday, Tullow shares closed down more than 7pc at just under £1.39, the lowest in over a decade. In 2012, the shares were trading above £15.

Recently the Sunday Independent reported that legendary hedge fund manager Crispin Odey had upped his short position in Tullow by a third.

Investec analyst Brian Gallagher is bearish on the stock and has set a price target of 95p, concerned about the company's high debts. In its last trading update, Tullow said it expected its net debt to be $4.2bn at the end of 2015.

In a note circulated on Friday Gallagher said he expected 2016 to be "another challenging year" for Tullow. In early 2015 the company suspended dividends and said it would slash its exploration spend, while chief executive Aidan Heavey told this newspaper that there was a risk the company could breach bank covenants.

In March it said it had secured an extra $450m of additional capital under existing facilities. Later in the year Gallagher said an equity raise was necessary: "Tullow has reached a tipping point and can choose either to be passive, hoping the oil price rises, or it can raise fresh equity. We advocate the latter and see recapitalisation followed by an asset sale... as the only way to correct Tullow's flagging investment case."

By contrast, analysts at UBS this week reiterated a buy rating on Tullow's stock, with a price target of 240p, saying the company was well financed and had quality assets.

Oil prices fell below $35 a barrel for the first time since 2004 on Wednesday. On Friday Brent was at $33.57 a barrel at 3pm GMT.

The plunge came after a Chinese devaluation of the yuan sent equity markets tumbling around the world. Over the past year, the world has been producing 1.5 million barrels per day (bpd) more oil than it consumes.

Also this week, Tullow became embroiled in a row with a venture partner over a project in Guinea. Texas-headquartered oil and gas explorer Hyperdynamics, with whom Tullow shares an interest in the project, issued a statement saying a Tullow subsidiary was stalling on a commitment to drill an exploratory well. Tullow declined to comment on the statement.

(Additional reporting Reuters)

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