Tullow oil shares up as crude slumps

Shares in Tullow Oil were up by more than 12% in London for much of yesterday’s trading session, hitting a two- month high in the process, as the Irish-founded explorer issued an upbeat trading update and said it is financially protected against the continually weakening oil price environment.

Ahead of annual results next month, Tullow said its 2015 revenues amounted to $1.6bn, net debt was reduced to $4bn, gross profit amounted to $600m and it has ‘financial headroom’ of $1.9bn.

The company — which last year targeted $500m in cost savings over a three-year period — said its hedging position provides significant protection for future revenues and cash flows.

It added that further cost-cutting opportunities will be sought as balance sheet deleveraging/debt reduction remains a priority this year.

Tullow has hedged 64% of its oil production at $75 a barrel.

On a day when oil prices briefly dipped to 12-year lows of below $30, Tullow’s share price (down by about 62% since early last year) was up by 12%, at around £1.36; before retracting marginally to close the day nearly 5% up at £1.29.

“In 2015, Tullow not only reset its business to deal with very difficult market conditions but also delivered on its key operational goals.

"We continue to focus on driving down our costs and capital expenditure and, at the beginning of 2016, Tullow has a mark-to-market hedge value of over $600m and financial headroom of $1.9bn.

"Accordingly, we have a diversified balance sheet which supports our planned activities for the year ahead,” said chief executive Aidan Heavey.

Tullow said its TEN oil field, off the coast of Ghana, is now more than 80% complete and should begin producing by July/August of this year.

That should boost production from its west African assets to 73,000-80,000 barrels of oil per day, up from 66,000 last year.

“Despite the tone of the trading statement being somewhat positive in terms of production outlook, and that their net debt position has started to improve, Tullow shares remain to be under considerable pressure due to the weakness in spot crude prices,” said Darren McKinley of Merrion Stockbrokers.

“Given the hedge that Tullow has in place, Brent would need to average less than $20 a barrel in 2016 to report a realised oil price of $40 in 2016,” he added.

“Tullow is expected to take further non-recurring charges in 2015, which will weigh on net-income, but we assume investors will focus on 2016 outlook for production and the current spot price for Brent crude oil,” said Mr McKinley.