Monday 23 October 2017

Tullow tipped for return to 'frontier explorer' strengths after asset sale

 

Irish founder Aidan Heavey, pictured, announced earlier this year that he is to step down as chief executive of the London-listed company. Pic: Mark Condren
Irish founder Aidan Heavey, pictured, announced earlier this year that he is to step down as chief executive of the London-listed company. Pic: Mark Condren

Fearghal O'Connor

Tullow Oil is set to return to its "traditional strengths as a frontier explorer" following the sale of assets next year, according to analysts.

The Dublin and London-based oil and gas company has endured a tumultuous few years since huge African discoveries saw it grow from its Co Carlow roots to become one of the most successful independent companies in the sector.

Irish founder Aidan Heavey, pictured, announced earlier this year that he is to step down as chief executive of the London-listed company. Its share price has fallen more than 80pc since it peaked in 2012 but research from Barclays targets a 30pc rise to 220 pence sterling for the shares.

Tullow is close to concluding a two-year re-set of the business, with a debt refinancing the last item outstanding after an extensive cost efficiency programme, portfolio rationalisation and a $750m rights issue, said the research note.

"This journey has required many difficult decisions, but we believe the end result is a balanced E&P [exploration and production] business with a portfolio that can grow," said the note.

Barclays said that Tullow could "remain self-sufficient" if the price of oil stays around $50 a barrel but warned that "the stock remains highly geared to a rising oil price outlook."

With low oil prices dogging the exploration sector, Tullow two years ago launched a massive cost-cutting programme across its business. By the end of 2016, the company had achieved savings of $300m and is on target to generate savings of $600m, said the research note.

Cutbacks saw a 44pc reduction in employee numbers, with non-operational corporate and admin roles falling by three quarters. Job losses have impacted Tullow's Dublin office where it employs more than 100, many of them in highly skilled geologist and scientific roles.

The research note said that Tullow management has identified a partial sale of its producing Ghana business to accelerate debt reduction, and a farm down in Kenya to secure a development carry for the 750 million barrel project.

"The most likely timing for deals on both assets is 2018. We estimate the sale of a 20pc stake in Tullow Ghana could net $1bn, while a substantial farm down in Kenya should secure a full development carry through first oil in 2022," said the Barclays note. Tullow offers investors exposure to rising low-cost oil production in Ghana that is generating free cash flow, while a further phase of medium-term growth comes from Uganda and Kenya, it said.

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