Half-year results for Tullow Oil (TLW) opened with a tribute to founder and outgoing chairman Aidan Heavey, who has led the group for 32 years. An impressive stint maybe, but the last four of those have found Tullow’s stewardship of capital wanting. Yes, the FTSE 250 group fell victim to a once-in-a-generation collapse in the oil price. But so did BP and Shell, and the share price of both of those companies is up on mid-2014. Tullow’s stock is off 70 per cent.
Why then would you buy the group’s shares now? The first sales pitch is a 60 per cent possible increase in production from current assets, to as much as 150,000 barrels of oil per day (bopd). No date has been set for that figure – 100,000 bopd is described as the “potential”, rather than a target for 2019 – although the new TEN and Jubilee wells are set to build on $650m (£492m) of forecast free cash flow this year.
That figure would have been around $200m higher, had various litigation results gone Tullow’s way. Still, the blow was softened by a belt-tightening initiative that has brought down cash costs by $708m, 42 per cent beyond an initial target. Consequently, one barrel costs less than $11 to produce, and should fall further, although overall costs require a lot more cash: the Ghanaian assets will swallow $250m in capital this year alone, while $90m has been ear-marked for exploration.
On average, analysts expect adjusted EPS of 33.3¢ and pre-tax profits of $742m in 2018, compared with 20.2¢ and a loss of $299m last year.
| TULLOW OIL (TLW) | ||||
| ORD PRICE: | 223p | MARKET VALUE: | £3.10bn | |
| TOUCH: | 222.7-223p | 12-MONTH HIGH: | 279p | LOW: 147p |
| DIVIDEND YIELD: | nil | PE RATIO: | 16 | |
| NET ASSET VALUE: | 185¢* | NET DEBT: | 119% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 788 | -558 | -28.3 | nil |
| 2018 | 905 | 151 | 3.9 | nil |
| % change | +15 | - | - | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| £1=$1.32. *Includes intangible assets of $2.01bn, or 144¢ a share. | ||||
