Will Tullow Oil shares fall further after sale of Ugandan assets?

Tullow Oil will release its trading and operational update on Wednesday. But will its share price fall further after the sale of its Ugandan assets, the latest in a series of setbacks for the business?

Tullow Oil is set to release an update on its trading and operational performance on Wednesday 29 July, but investors are unlikely to be impressed by the results with the business’ share price succumbing to a series of setbacks in 2020.

Before the Covid-19 crisis hit, sending oil prices crashing, investors were already concerned about the amount of debt on Tullow Oil’s balance sheet, its weaker-than-expected production, a management shakeup and its decision to suspend its dividend.

Unsurprisingly, analysts outlook for the stock is poor, with the average share price target among brokers over the last three months sitting at just 29p per share – only 2p higher than where it is currently trading.

‘2019 ended with significant operational and financial challenges for Tullow, resulting in changes to our executive leadership and a sharp reduction in our share price,’ Tullow Oil executive chair Dorothy Thomson said in its sustainability report earlier this year.

‘We have disappointed our shareholders and other stakeholders, but we are determined to learn from the lessons of 2019,’ she added.

Tullow Oil is trading at 27p at the time of publication, with the stock down 53% year-to-date.

Tullow Oil sells Ugandan assets to Total

Earlier this month, Tullow Oil shareholders approved the sale of its Ugandan oil assets to French oil and gas company Total in a deal valued at $575 million (£447 million).

Cash-strapped Tullow Oil chose to offload its remaining 33.33% stake in its Ugandan oil field and the proposed East African Crude Oil Pipeline (EACOP) to help strengthen its balance sheet at a time when oil prices remain low due to Covid-19.

The transaction is expected to be finalised in the second half of 2020.

Tullow Oil: technical analysis

Tullow has been on the slide over recent weeks, with the stock grinding lower after a surge in early-June. That recent decline takes us back towards the 76.4% Fibonacci support level at 26p, according to Josh Mahony, senior market analyst at IG.

‘Crucially, we are trading within a uptrend which is characterised by higher lows,’ Mahony said. ‘As such, another leg higher could come into play before long, with a break below the 22p level required to bring about a fresh bearish outlook.’

‘However, given the recent period of downside, it may make more sense to await a break through the 31.7p mark to bring about a fresh bullish signal,’ he added.

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