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FTSE 100: Can Tullow Oil shares recoup their recent losses following debt refinancing?

How to trade Tullow Oil shares following the company’s debt refinancing deal with Glencore ahead of Wednesday’s trading statement?

Tullow Oil Source: Bloomberg

What impact could Tullow Oil’s debt refinancing have on its share price?

Shares of Tullow Oil PLC have seen a surge on Monday as the Africa-oriented oil producer has secured a fresh $400 million debt facility through a deal with Glencore ahead of its Wednesday trading statement.

This five-year arrangement will offer draw-downs over an initial 18-month period and will carry interest at an overnight benchmark rate plus 10%. Tullow has also agreed to oil marketing and offtake contracts with Glencore. This facility is planned to enable Tullow to completely address a number of financing agreements that are due to mature in 2025 and 2026.

Rahul Dhir, Tullow's chief executive, views this agreement as a strong validation of the company’s business strategy and plan. He further added that this move is a significant step in his refinancing strategy, following the successful and equity accretive tender offer in June.

In the London market, Tullow shares rose by 7% to trade at 32.40p each, giving the company a market capitalisation of around £470 million. Dhir stated that the Glencore debt, along with Tullow’s cash and an additional $800mn of free cash flow from 2023 to 2025, would allow them to fully address all outstanding 2025 notes. The financing also prepares Tullow for a successful refinancing of the 2026 notes.

Alex Sanna, Glencore’s oil and gas business CEO, also expressed his support for the agreement, stating that it endorses Tullow's business strategy and plan and showcases Glencore’s capability in structuring finance solutions in the oil and gas sector.

Despite the high cost of this new arrangement, it extends the maturity of Tullow’s debt and alleviates pressure in the near-term. This insight, coupled with the strong endorsement from both Tullow and Glencore executives, indicates a positive outlook for Tullow's financial future.

How to trade Tullow Oil’s trading statement?

On Wednesday 15 November Tullow Oil is expected to publish a trading statement which will likely impact its share price further.

Technical analysis on Tullow Oil’s share price

Tullow Oil’s share price, which has fallen year-to-date by over 10% despite rallying by 7% on Monday 13 November as the Africa focused oil producer secured a new $400 million debt facility through a deal with Glencore, will stay on a medium-term downward trajectory unless it can rise above its 35.78 pence late-October high.

If so, the September-to-November bearish corrective phase will be deemed to have ended with the September peak at 39.94p being back in the picture.

Tullow Oil Daily Candlesticks Chart

Tullow Oil daily chart Source: TradingView
Tullow Oil daily chart Source: TradingView

Tullow Oil’s share price needs to remain above its October-to-November lows at 30.22p to 30.04p lows for a bullish reversal to remain possible, though.

In case of a fall through the minor psychological 30p level being seen, the company’s share price might slip further towards the late-June and July lows at 27.30p to 27.00p. Further down lies the March low at 25.94p.

Tullow Oil Weekly Candlesticks Chart

Tullow Oil weekly chart Source: TradingView
Tullow Oil weekly chart Source: TradingView

Analysts recommendations and IG sentiment

Fundamental analysts are torn between ‘hold’ and ‘buy’ with Refinitiv data showing 3 strong buy, 3 buy, 4 hold and 1 sell - with the mean of estimates suggesting a long-term price target of 56.73p for the share, around 72% higher than the current share price (as of 13/11/2023).

Tullow Oil analysts Source: Refinitiv
Tullow Oil analysts Source: Refinitiv

IG sentiment data shows that 95% of clients with open positions on the share (as of 13 November 2023) expect the price to rise over the near term, while 5% of clients expect the price to fall whereas trading activity over the last week shows 83% of buys and 70% of buys this month.

IG Tullow Oil sentiment Source: IG
IG Tullow Oil sentiment Source: IG

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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