Tullow Oil shares sink on Goldman Sachs downgrade

Shares in Tullow Oil nosedived by over 11% yesterday after the Irish-founded exploration firm was downgraded by two high profile brokers.

Both Goldman Sachs and Macquarie cut their ratings on Tullow — the former from ‘buy’ to ‘neutral’ and the latter from ‘outperform’ to ‘neutral’ — over concerns for the health of the company’s balance sheet.

Goldman Sachs expressed concern that Tullow’s planned spending in East Africa could diminish its free cash flow from 2018, while Macquarie suggested Tullow could sell its Ugandan assets, which cover four licences, to improve its finances.

Tullow’s share price closed down 10.8%, to €3.59, in Dublin and by nearly 11% to £2.49 in London.

However, it is up 48% in the year to date and rose to a nine-month high last week when Tullow — which has debts of $4.5bn — agreed extended borrowing facilities with lenders.

Tullow’s total spending is set to fall to $900m this year and further to $300m next year.

The company indicated, earlier this year, that with first oil production coming from its TEN field near Ghana this summer, the company should be in a positive net cash flow position later this year.

Tullow has been under fire from analysts already this year and management has said asset sales are always under consideration.

“We have a portfolio of world class, low-cost oil assets which will produce around 100,000 barrels of oil per day in 2017 and a major position in one of the world’s newest, low cost oil provinces in East Africa; both enabling us to create substantial value,” chief executive Aidan Heavey said recently.