Tullow Oil is hoping on TEN field

The troubled oil company will increase output next year when the TEN field comes on stream, but the depressed oil market is keeping pressure on the stock.

Oil plant
Source: Bloomberg

Tullow Oil has had a tough few years as the collapse in the price of oil combined with encountering a number of dry wells has sent the stock tumbling.

The firm will announce its full-year results in February 2016, and dealers are anticipating revenue of $1.63 billion and adjusted net income of $18.32 million. That compares with last year’s revenue and adjusted net income of $2.21 billion and an adjusted net loss of $1.47 billion.

The oil company will reveal its second-half revenue on the same date, and dealers are anticipating revenue of $823 million and that forecast represents a 0.5% increase to the first-half revenue.

The company has come under considerable pressure as the downturn in the oil market forced Tullow to register a loss last year. It was the company’s first full-year loss in 15 years. The negative sentiment spilled into this year and the firm registered a first-half loss, although it was smaller than the loss incurred in the first six months of 2014.

Reducing the headcount and keeping an eye on costs satisfied shareholders in the short-term but the share price is being dragged lower by the price of oil. Tullow doesn’t have a downstream business to fall back on unlike the major players in the sector, and that is why its collapse in profits and market value is more pronounced.

The company hopes to ramp up production by 50% in 2016 thanks to the so-called ‘TEN’ field in Ghana. The operation in West Africa has made the Irish oil explorer a possible takeover target according to Goldman Sachs. A potential bidder would need to be cash-rich and be able to see out the downturn in the oil market. While the outlook for the energy market is still gloomy few will be brave enough to put in a bid.

Despite the major drop in share price equity analysts are very bullish on Tullow Oil and out of the 31 recommendations, 20 are buys, eight are holds, and three are sells. The average target price is 284p, which is 76% above the current price.

Investment banks are also very bullish on Cairn Energy, and out of the 24 recommendations, 13 are buys, eight are holds, and three are sells. The average target price is 179p, which is 28% above the current price.

Technical analysis from Joshua Mahony MSTA, Market Analyst at IG.

Tullow shares have been understandably suffering as the deterioration in crude oil prices drag shares in oil-related firms lower. We are currently seeing Tullow attempt to regain some ground from the £1.50 region and should this persist, a close back above £164.50 would give an indicator that we could see further gains towards the £1.80 and £2.17 resistance levels.

However, the long-term trend is very clear and selling remains the name of the game. Thus, the bearish view will hold for the medium-term and a close below £1.50 would provide a bearish signal that further losses are on the cards. 

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