Tullow has a tough year

The market is anticipating a large loss when Tullow Oil announces full-year figures on Wednesday 11 February.

Oil rig
Source: Bloomberg

Tullow Oil has had a terrible 12 months and the outlook for the company still looks uncertain. The Irish oil company is expected to swing to a full-year loss as write downs on assets and depressed oil prices have hit the company hard. The company encountered a number of dry wells in the last year, which triggered a decline in the share price. This was then exacerbated by the collapse in the price of oil.

As I stated in my Chevron article, big oil companies that have a fully integrated model depend on their refinery business to offset losses at their exploration business. Tullow Oil has no such downstream division to rely on during this time of low oil prices, and the stock is being punished for it. The company, which has a listing in Dublin and London, has written off €2 billion in relation to asset values. Capital expenditure for this year will be $200 million, a 77% decline on last year’s figure. Successful wells off the coast of Ghana will be the focus of Tullow Oil’s strategy for the foreseeable future, and while the price of oil remains at multi-year low’s the company will be tightening its belt.

The consensus for full-year revenue of $2.29 billion and a net adjusted loss of $671 million. Last year the company announced annual revenue of $2.64 billion and an adjusted net profit of $169 million. The oil firm will also report second-half numbers on the same date, when analysts are anticipating revenue of $1.09 billion and an adjusted net loss of $279 million. The first-half figures were mixed – revenue came in at $1.26 billion and the adjusted net loss was $75 million, when the market was anticipating $1.29 billion and a loss of $84 million respectively.

Equity analysts are surprisingly bullish on Tullow Oil; out of the 34 recommendations, 16 are buys, 14 are holds and four are sells. The average target price is 488p, which is 20% above the current price. Investment banks are also bullish on Royal Dutch Shell, and, out of the 32 ratings, 16 are buys, 14 are holds and two are sells. The average target price is £23.29, which is 8.5% above the current price.

The stock is receiving support at the 50-day moving average of 395p, and a move below this would convert the metric into resistance and the downside support of 350p will be the target. If the 50-DMA is held the upside resistance at £5 will be brought into play.

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