Today’s interim results show that Tullow Oil PLC (LON:TLW) is firmly back on track, that’s the view of Hargreaves Lansdown analyst Nicholas Hyett.
Tullow this morning reported US$905mln of revenue, reflecting a 14% improvement from the US$788mln generated in the comparative period last year.
It comes as oil prices are stronger and as Tullow produced an average of 88,200 barrels oil per day (adjusted to include 11,900 bopd of ‘production equivalent’ insurance payments) for the six months.
READ: Tullow Oil puts growth back on the agenda
Gross profit was reported at US$521mln, up from last year’s comparative of US$303mln, while free cash flow for the half was measured at US$401mln, up from US$205mln. Profit after tax came in at US$55mln, compared to a US$348mln loss in the first half of 2017.
Net debt, meanwhile, reduced significantly to US$3.08bn as at June 30 versus US$3.8bn a year before.
“Things were touch and go a couple of years ago, but Tullow is now firmly back on the right track,” Hyatt said in a note.
“Net debt’s still a bit higher than we’d like, meaning it’s very exposed to a reversal in oil prices, but the debt pile is falling rapidly and with the huge Ghanaian field producing tens of thousands of barrels of oil a day, there’s plenty of cash flow to service it.”
Tullow looking to grow again
Operationally, Tullow is again focusing on production growth with a Ghana drill programme due to start in August, to be further bolstered with the addition of a second rig by October. Tullow has an upgraded production guidance for 2018 set at 86,000 to 92,000 bopd, up from 82,000 to 90,000.
New developments are being advanced in east Africa. Project sanction is anticipated for the company’s Uganda joint venture by the end of this year. In Kenya, the company is aiming to reach a final investment decision by late 2019.
On the exploration front, high impact new drilling is due to start with the Cormorant well offshore Namibia.
“The group’s taking the opportunity to invest in new projects, and progress in the East African portfolio looks promising,” Hyett added.
“The need to replace existing reserves is the monkey on the back of all oil groups, and Tullow probably spent less than it would like over the last few years.
“We wouldn’t be surprised if capital expenditure were to climb from here, and combined with the need to reduce debt that could restrict returns to shareholders in the medium term.”