Interactive Investor

ii view: merger hopeful Tullow Oil happy with output guidance

13th July 2022 15:57

Keith Bowman from interactive investor

Shares for this African oil explorer are down around 15% over the last year. We assess prospects. 

First-half trading update 

Chief executive Rahul Dhir said: 

"It is two years since I joined Tullow and today, we are in a very different place. A relentless focus on costs, capital discipline and operating performance is ensuring delivery of our business plan.”

ii round-up:

Africa-focused energy company Tullow Oil (LSE:TLW) today reported first-half production of 60,900 barrels of oil equivalent per day, in line with management forecasts. 

Full-year production guidance was maintained at between 59,000 to 65,000 barrels of oil equivalent per day with the FTSE 250 company expecting to generate annual free cash flow of $200 million assuming an average oil price of $95 per barrel.

Tullow Oil, whose shares drifted just over 1% lower in UK trading, announced in early June an all-share merger with fellow FTSE 250 company Capricorn Energy (LSE:CNE)

Tullow has interests in over 30 exploration and production licences across eight countries, including Ghana where it operates the Jubilee and TEN fields. 

Formerly Cairn Energy, Capricorn today has development, production and exploration assets across the UK, Egypt, Israel, Mauritania, Mexico and Suriname. A shareholder vote regarding the proposed merger is expected towards the end of the year.

In Ghana, its drilling programme that started in April last year has delivered seven new wells, six at Jubilee and one at TEN, at an average cost of less than $50 million per well. 

Tullow generated revenue for the half and including the cost of hedging of $0.8 billion at a realised oil price of $106 per barrel before hedging and $87 per barrel after hedging. Capital expenditure for the period came in at $155 million.

Under the proposed merger terms, Capricorn shareholders will receive 3.8068 new Tullow shares for each existing shares. Tullow management expects the proposed merger with Capricorn to realise meaningful cost synergies and deliver a combined group with robust cash generation and a resilient balance sheet.

Tullow’s first-half results are scheduled for 14 September. 

ii view:

Founded in and named after the town of Tullow in the Republic of Ireland in the mid-eighties, the group today is a constituent of the FTSE 250 index and is listed on the London, Irish and Ghanaian stock exchanges. It operates three divisions: West Africa, East Africa and New Ventures.

For investors, Tullow has been a company in retreat over recent years. In early 2019, it had interests in over 85 exploration and production licences compared to over 30 today. A global pandemic hit the oil price hard in 2020, while the outlook for the oil price is now caught between the West’s desire to avoid using Russian supplies and fears of a global recession. Fossil fuel usage is also under attack from long-term climate change initiatives.

On the upside, a potential merger with Capricorn offers opportunity for cost savings. A coming together of the two companies would enhance the diversity of geographical operations, while the combined group is expected to generate production of around 100,000 barrels of oil equivalent per day. On balance, investors may wish to stay patient and await further developments. 


  • Proposed merger with industry counterpart
  • Been reducing debt via asset sales and costs cuts


  • Uncertain economic and oil price outlook
  • Fossil fuels negatively linked to climate change

The average rating of stock market analysts:


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