Tullow Oil (LON:TLW) shares rallied around 10% as it reassured investors whilst crude oil prices remain near twelve year lows.
The oil producer said it generated US$1.6bn of revenue in 2015 and that pre-tax operating cash flows amounted to US$1bn.
Hedging arrangements, which see more than half of group production sold at US$75 per barrel, mean the company is somewhat protected from the worst of the oil price turmoil (as crude currently changes hands for about US$31 per barrel).
The company values its hedging arrangements in excess of US$600mln, and it said it has some US$1.9bn of financial headroom.
In total, Tullow said production for 2015 averaged 66,000 barrels of oil per day (bopd), within the company’s guidance, and that in 2016 output is expected to grow to an average between 73,000 and 80,000 bopd as the TEN field development begins to come online in the summer.
Tullow added that its onshore discoveries in Kenya, which are now estimated to contain at least 600mln barrels of oil resources, underpin what it describes as a strong base for future development.
Aidan Heavey, Tullow chief executive, said: "In 2015, Tullow not only reset its business to deal with very difficult market conditions but also delivered on its key operational goals.
“Strong West African oil production supported by a significant hedge programme delivered pre-tax operating cash flow of US$1 billion.
“We also made excellent progress on the development of the TEN Project which is on track to begin production in the middle of 2016 and we expect the group to be producing around 100,000 bopd in West Africa in 2017.”
In London, Tullow’s shares gained 12.8p, 10.4%, to trade at 135.9p each.
Barclays Capital repeated an ‘overweight’ rating for Tullow following today’s update. The investment bank’s 300p price target implies more than 100% upside to the current market price.
Analyst James Hosie called it a “reassuring update”.
“While the magnitude of Tullow’s debt position remains a focus for investors, we believe the company has the financial flexibility in place to fund its capital commitments, while its substantial hedging position should ensure 2016E operating cash flow remains robust through this period of ~US$30/bbl oil,” he said in a note.