It’s been a bumpy ride for the Tullow Oil (LSE: TLW) share price. The UK oil share has risen 68% during the last 12 months, amid the fightback against Covid-19.
But fears over an uneven global economic rebound — allied with concerns over the company’s stretched balance sheet and some disappointing news on the exploration front — have prompted bouts of choppiness for the share price.
But that price moved higher on Wednesday following a positive reception to latest trading numbers. At 52.30p per share, the FTSE 250 firm is currently 2% higher on the day.
Tullow Oil cuts production estimates
In a mixed trading update, Tullow Oil said it now expects full-year output of between 55,000 and 61,000 barrels of oil per day. This is down from the UK oil share’s previous estimate of between 60,000 and 66,000 barrels for 2020.
Tullow said that this lower forecast “reflects the sales of the Equatorial Guinea assets and the Dussafu Marin permit and first half delivery.” The company produced 61,200 barrels of the black stuff between January and June.
First-half revenues are expected to come in at $700m, reflecting a realised oil price of $58 per barrel. This includes hedging costs of around $50m.
Positive cashflow news
Despite this setback, Tullow Oil’s share price has risen, thanks to positive news concerning its balance sheet. The UK oil share said it expects to record underlying operating cashflow of $600m for 2021. This assumes that crude prices will average $60 per barrel for the remainder of the year.
Cashflow will be boosted by $50m should oil prices average $70 for the remainder of 2021, Tullow added. The Brent benchmark was recently trading around $76.
First-half underlying operating cash flow is also expected at around $200m, while net debt is predicted at $2.3bn.
Not out of the woods yet!
Rahul Dhir, chief executive at Tullow, praised the “excellent operational and financial progress” the company had made in the first half of 2021.
“Our producing fields in West Africa are performing well and we have successfully started our drilling programme in Ghana,” Dhir added. “Tullow now has a strong financial footing and we are making very good progress in delivering on our highly cash generative business plan and continuing to reduce our debt.”
The company also issued $1.8bn worth of bonds in May as part of a huge refinancing package.
Analyst Sophie Lund-Yates at Hargreaves Lansdown was less enthusiastic about the UK oil shares outlook however. She said that “the refinancing of Tullow’s debt was a necessity, and to see this come to fruition is an important milestone.”
But she added that the business “still has issues to contend with.” And Lund-Yates singled out “the rising demand for renewable energy” as a particular worry.
“Tullow’s fortunes are largely out of its control, and if the market sours again, it will quickly find itself swimming against the tide,” the analyst said.
