ii view: Tullow Oil shares crash 74% in a month
It's all gone wrong at Tullow Oil where the share price just plunged another 62%. Here's why.
9th December 2019 10:38
It's all gone wrong at Tullow Oil where the share price just plunged another 62%. Here's why.
Trading update
ii round-up:
In an unexpected trading update, Irish headquartered oil company Tullow Oil (LSE:TLW) outlined 2020 production forecasts of between 70,000 and 80,000 barrels of oil per day (bopd), well below a target of 87,000 bopd for 2019. It also scrapped the dividend payment just a year after announcing it would start returning cash to shareholders again after a four-year break.
The share price more than halved in early UK market trading, diving as much as 62% to just 53.55p, the lowest they've been since 2001.
Source: TradingView Past performance is not a guide to future performance
Tullow also announced the immediate resignation of both its chief executive officer Paul McDade and exploration director Angus McCoss, with Dorothy Thompson appointed temporary CEO.
Production difficulties identified included increased water cut on some wells and lower facility uptime in Ghana, along with mechanical issues on two of its new wells at the TEN, or Tweneboa Enyenra Ntomme, oil field offshore Ghana, West Africa.
Group production for the following three years after 2020 is expected to average just 70,000 bopd.
Considering the level of expected free cash flow in 2020, Tullow has decided to suspend the dividend payment. It had only announced two dividends - 4.8 cents (3.73p) in February and 2.35 cents (1.89p) in July - since returning to the dividend list.
A full financial and operational update will be provided at the company’s full-year results on 12 February next year, with an update on progress scheduled for a trading statement in mid-January.
ii view:
The company was founded in and named after the town of Tullow in the Republic of Ireland in 1986. Today, the oil and gas explorer operates across the three divisions of West Africa, East Africa and New Ventures. Ghana in its West African business generated just over three-quarters of 2018 group revenue.
For investors, oil exploration and production can prove a highly volatile business. As such, typically it is only investors with a medium to high appetite for risk that consider investing in this sector.
For Tullow, its previous commencement of a dividend payment appeared to underline management’s confidence in the outlook. Now, the reverse applies, with the payment being scrapped. Lowered production guidance sits at the heart of its difficulties. Of course, there is always the chance that speculators might push the price higher, but also a threat that things may get even worse. It's impossible to say. With the share price having already suffered significant volatility and today’s steep fall only adding to this, any investment in Tullow is clearly for high-risk investors only.
Positives:
- Operates two offshore developments in Ghana
- Made previous oil discoveries in both Kenya and Uganda
Negatives:
- Extraction difficulties have again seen production guidance lowered
- Dividend payment scrapped
The average rating of stock market analysts:
Buy (UNDER REVIEW)
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