Tullow Oil share price forecast: Will it recover from failed merger plan?
Tullow Oil (TLW) shares have seen better days. While other oil companies have thrived, TLW’s share price is down around 90% over the past 10 years. Its year-to-date growth numbers are also negative – the firm’s share price has fallen by more than 18% so far in 2022.
The failure in September of a planned merger with Capricorn (CNE) has been a fresh headwind for TLW shares.
Tangled in debts and operational challenges, the London-based oil and gas explorer has not yet tapped the gain in oil prices, unlike many of its peers. But strong crude oil prices, although it has come down from above $100 a barrel, have still managed to offer some support to the TLW share price.
Will the company be able to recover from its slump? The article discusses analyst predictions for Tullow Oil share prices, the stock’s recent performance, and the most recent news.
Company history
Named for a small town outside Dublin, Tullow Oil was founded in Ireland in 1985, as a gas exploration company operating in Senegal. The firm floated its shares on the London Stock Exchange (LSE) in 1986, and eventually became a part of the benchmark FTSE 100 index in September 2007.
TLW left the index following a drop in the company’s share price and market capitalisation in March 2015, and was replaced by pharmaceutical firm Hikma. Tullow Oil is currently part of the FTSE 250 index – a broader list of 250 mid-cap businesses not big enough to be included in the FTSE 100.
Following a series of acquisitions of gas fields from BP in the UK Southern North Sea in 2000, the company doubled in size in 2004, following the $500m Energy Africa acquisition. The company describes the deal as a “transformational acquisition which gave Tullow substantial production of 54,000 boepd (50% oil; 50% gas) and a range of production and exploration assets in Uganda, Gabon, Equatorial Guinea, Namibia and Congo, among others”.
The company discovered a 1.1-billion-barrel field in the Lake Albert region of Uganda in 2006, and continued its success with the discovery of the Jubilee field in the deep waters off Ghana.
The successful development of several hydrocarbon basins in both countries throughout 2006 and 2007 led to record production and elevated company revenue to $1,280m, leading to TLW’s inclusion in the FTSE 100.
In 2012, after raising cash from its Ugandan find by selling two-thirds to TotalEnergies (TTEF) and the China National Offshore Oil Corporation (CNOOC) for $2.9bn, Tullow went in search of similar rift valley discoveries in Kenya and Ethiopia. But the firm’s exploration strategy, while yielding returns, has also created problems.
“Tullow’s challenge is that as it grows bigger and tries to produce oil, not just find it, it will run into increasing problems and costs,” wrote the New York Times’ Stanley Reed in mid-2012.
Long seen as a pioneer African oil and gas explorer, the company has been forced in the past three to five years to focus on reducing its huge debt load. CEO Paul McDade stepped down in December 2019, as the firm had to write off $1.2bn in debt, which resulted in a halving of its share price, along with the cancellation of any possible dividend payouts.
The debt was accumulated due to missed production targets from its flagship operation in Ghana, in addition to a series of setbacks in Uganda, Kenya and Guyana. In order to raise cash, the firm sold all of its Uganda assets to TotalEnergies for $575m in April 2020.
In April 2020, Tullow announced that Rahul Dhir had been appointed as the new CEO, with effect from July 2020.
The company revealed a merger with UK-based energy firm Capricorn on 1 June 2022. The companies were to merge in an all-stock deal worth £656.9m ($826.7m). The merger, backed by the boards of both companies, would result in savings of $50m.
Investors in the new group were expected to receive an annual base dividend of $60m. Tullow shareholders last received a dividend in 2019, according to Reuters.
Tullow Oil share price history
The Tullow Oil stock price has been on a roller-coaster ride in the past two years. The Tullow Oil share price history shows its stock dropped to a record low of 7.17p on 18 March 2020 — right at the onset of the coronavirus pandemic.
By the end of the first half of 2020, the London-based company ran negative free cash flow and $3bn debt as oil demand collapsed, following Covid-19 mobility restrictions and output drop. Its stock value declined 53.78% in 2020.
The Tullow Oil share chart indicates that the firm’s stock value gradually recovered in 2021, in line with rising oil prices, as demand recovered with countries relaxing Covid-19-related restrictions. The company refinanced its debts in May 2021 and completed sales of some of its interests to improve its financial performance.
On 16 June 2021, the company’s share price hit its highest point for the year at 66.22p after CEO Rahul Dhir announced that it had raised over $700m from sales of its interests in Uganda, Equatorial Guinea and the Dussafu Marine Permit in Gabon.
The stock retreated in the second half of 2021, trading at around 45p by end of the year. However, the price managed to recoup its 2020 losses, gaining 57.03% over 2021.
Entering 2022, Tullow Oil continued its gain, briefly crossing 61p on 18 January as Brent Crude touched a fresh seven-year high on rising post-pandemic demand. But the gain did not last long. On 16 March, Tullow Oil’s stock plunged more than 16% on the day to close at 51.88p, following disappointing 2021 full-year results.
In the latest Tullow Oil share news, the company announced an expansion of its operation in Ghana by acquiring Occidental Petroleum’s (OXY) interest in the TEN and Jubilee fields. With the acquisition, the company’s interests increased to 38.9% in the Jubilee fields and to 54.8% in the TEN fields. The acquisition, valued at $118m in cash, brought an additional 5,000 barrels of oil equivalent per day (boepd) of production.
The deal fostered bullish sentiment, pushing the stock to return to above the 60p level, peaking at 61p on 12 April. TLW shares then embarked on a downward trajectory, and were trading around the 45p level as of 4 July 2022.
The failed merger plan with Capricorn Energy added downward pressure on Tullow Oil’s share price. On 29 September, Capricorn Energy announced that it had dropped the merger plan with Tullow Oil and opted for a proposed merger with Israeli energy company, NewMed, for a $620m special dividend payment to its shareholders.
Tullow Oil stock fell 6.57% to 41.52p following Capricorn Energy’s announcement.
As of 9 December, Tullow Oil share analysis showed it has dropped 18.73% year-to-date (YTD) to 36.38p. The share has also dropped 13.48% in year-over-year (YoY), according to data from Trading View
Tullow Oil fundamental analysis: Solid 1H performance
Tullow Oil booked revenue of $846m in the first six months of 2022 ended 30 June, a 16.36% increase from $727m in the same period of 2021, the company announced on 14 September.
Profit after tax surged to $264m on the first half of 2022, from $93m in the year-ago period. It forecast full-year free cash flow of $200m. However, the company’s net debt rose to $2.34bn from $2.29bn in the first six months of 2021.
It aimed to lower the net debt to Earnings Before Interest, Taxes, Depreciation, Amortization, and Exploration Expense (EBITDAX) to 1.5 times by the end of 2022..
Tullow Oil projections: 2022 guidance
The company produced average 61,800 barrels of oil equivalent per day(boepd) to end October 2022, it said in an operational update in November.
Tullow Oil lowered its production guidance for 2022 from 60,000-64,000 boepd to 61,000-62,000 boepd, following disappointing drilling results at the Ntomme on its TEN field in Ghana.
“The second of the two wells drilled in the Ntomme riser base area (Nt11-P) found poorer than expected reservoir quality and did not encounter economically developable resources,” Tullow said in November operations update.
On the financial front, the company has reduced the group’s capital investment and decommissioning expenditure guidance to $360m and $80m, respectively, from $380m and $100m in its previous guidance in September. The company attributed the lower guidance to activity deferral and a continued focus on cost reductions.
It increased its full-year free cash flow guidance to $250m, from $200m in September, subject to the year-end working capital movements. The upward revision on free cash guidance was based on an oil price assumption of an average $95 for November and December 2022
Tullow Oil’s latest news
Responding to Capricorn Energy’s withdrawal from the proposed merger, on 28 October, Tullow confirmed that it would no longer proceed with the merger plan with Capricorn Energy.
“With Capricorn out the picture Tullow is once again the master of its own destiny. But its strategic direction lacks some clarity. The market value of £0.7bn is well below internal valuation estimates of its resource base even after stripping out the debt, reflecting investor concern. With the energy transition also looming further ahead, caution is warranted,” according to Bristol-based financial service Hargreaves Lansdown in a note on 17 November 2022.
In other recent Tullow Oil news, the company announced on 8 December 2022 that it had appointed Richard Miller as its chief financial officer.
Tullow Oil share price forecast: Analyst sentiment
With the planned merger with Capricorn Energy having fallen through, it is still unclear what Tullow Oil’s future plans are. According to the company’s November operations update, Capital Markets Day, where Tullow Oil will present its business plan, has been postponed to a date to be determined in 2023.
In a note on 17 November, Hargreaves Lansdown raised concerns that Tullow Oil’s short-term focus on debt reduction could stifle its longer-term growth potential.
“Debt reduction remains a priority, as it should, but if the group doesn’t continue to invest in its oilfields, they’ll eventually run dry and Tullow expects about $360m of capital investment expenditure in 2022. We would like to see more details on the Group’s investment plans beyond 2022,” it said.
While the firm applauded Tullow’s new opportunities to develop significant gas resources in the region, the disappointing drilling result at the TEN Field highlighted the risks in exploration and development of hydrocarbon resources.
While soaring crude oil prices helped Tullow Oil to get back on its feet, Hargreaves Lansdown did not anticipate that Tullow will pay a dividend in the near term.
“Its ability to both pay down debt and fund its expansion is closely linked to the oil price, which could be adversely impacted by a prolonged downturn. Tullow is reducing its reliance on fixing its future sales price, a positive if oil prices remain strong, but risky if prices move the other way,” it said.
Speaking of the Tullow Oil stock future price potential, Mikhail Karkhalev, an analyst at Capital.com, noted that the company has had a challenging decade:
However, according to the analyst, the company has revealed stable performance lately, and the low TLW stock price could attract traders’ attention.
Tullow Oil (TLW) stock forecasts: Price targets for 2023–2025
Are Tullow Oil shares a ‘buy’, ‘sell’ or ‘hold’? We look into the latest TLW share price forecasts from analysts.
As of 9 December 2022, a consensus of six analysts tracked by MarketBeat suggested a ‘moderate buy’ for Tullow Oil’s shares. Four analysts rated the stock as a ‘buy’ and two rated it a ‘hold’.
Analysts set an average 12-month Tullow Oil share price target of 76.50p a share. The highest Tullow Oil stock forecast suggested it could rise to 90p and the lowest expected it to trade at 63p.
The Tullow Oil share price forecast from Jefferies downgraded Tullow Oil to ‘hold’ from ‘buy’ and cut the price target to 48p from 77p on 12 October.
Meanwhile, algorithm-based forecasting service WalletInvestor provided a longer-term Tullow Oil share price forecast for 2023 and beyond.
As of 9 December 2022, WalletInvestor suggested a bearish outlook for Tullow Oil stock, saying it was a bad long term (one year) investment. The service’s TLW share price forecast, based on multiple technical readings, expected Tullow Oil shares to trade at 28.448p by December 2023.
By December 2025, Tullow Oil share price was expected to collapse to 0.000001p, WalletInvestor’s Tullow Oil share price forecast for 2025 said. The site did not give a Tullow Oil share price forecast for 2030.
When looking at any TLW stock predictions, it’s important to bear in mind that analysts’ forecasts and price targets can be wrong, and that forecasts shouldn’t be used as a substitute for your own research. Always conduct due diligence before trading and bear in mind that past performance is no guarantee of future results.
It’s important to do your own research. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolio, and how comfortable you feel about losing money. You should never trade more than you can afford to lose.