The Tullow Oil [TLW.L] share price has trended upwards ahead of its full-year 2021 results announcement, amid soaring oil prices triggered by the ongoing Russia-Ukraine conflict.
Shares in the multinational oil and gas explorer and producer have risen approximately 19% year-to-date to 56.80p at the close on 7 March, and could see further upside when the company announces its full-year results on 9 March.
In a January trading statement, the Africa-focused oil explorer said it expects revenue for 2021 to come in around $1.3bn, with a realised crude oil price of $63 per barrel. The revenue outlook marks a continued annual decline from last year’s $1.4bn, after revenue of $1.7bn in 2019. This is partly due to hedge costs of around $150m following its acquisition of a larger stake in oil fields in Ghana.
Underlying operating cash flow is expected to be $700m, while free cash flow is estimated to come in at $250m. In the statement, Rahul Dhir, CEO at Tullow Oil, said that this was “driven by continued focus on costs, supportive oil prices in the latter parts of 2021 and favourable working capital movements”.
Tullow Oil increases stake in oil fields in Ghana
When Tullow Oil updates the market on 9 March, analysts will be looking out for any insight on where it expects oil markets to go. It has been a turbulent year for the industry so far, with conflict in Ukraine driving oil prices even higher. Looking to 2022, the company had already guided a realised oil price of $75 a barrel, with underlying operating cash flow coming in at $750m and with free cash flow of $100m.
Operations in Ghana will be another area to watch. The company said it would be increasing year-on-year spending in the country due to investment in infrastructure for the Jubilee North East and South East areas. This, Tullow said, would lead to meaningful growth in production as these undeveloped parts of Jubilee are brought on-stream from 2023 onwards. Analysts at Hargreaves Lansdown expect average production to pick up by 10% after the acquisition of the larger stake in Ghana closes at the end of 2022.
The company is also likely to be issuing an update on operations in near-field non-operated exploration opportunities in Gabon, a revised Kenya development project, and the Beebei-Potaro commitment well in Guyana, which Tullow has said could have the potential “to be significant value drivers”.
Debt reduction remains a priority
In the longer term, debt reduction remains a key priority for Tullow. The company secured $1.8bn in refinancing in May 2021, having warned that it faced a “significant risk” of insolvency proceedings. That placed the company on a more even keel, and it swung back into profit last year.
According to the January trading statement, year-end net debt reduced to around $2.1bn, down from $2.4bn in 2020, with liquidity headroom of $900m at the start of 2022 Tullow said it remained on track to “materially reduce net debt and achieve gearing of less than 1.5x net debt to EBITDAX by 2025”.
Analysts at Hargreaves Lansdown believe the recovery in oil prices has been key to supporting the company’s multiple asset sales. It has also provided a much-needed boost to cashflows, “and together with cost-cutting means the balance sheet is in a much better condition”.
Tullow Oil set to join the FTSE 250
The impact of the Russia-Ukraine conflict is being felt across global markets, with the FTSE 100 falling 6.7% during the first week of trading in March. However, sanctions imposed on Russian companies are also having an impact on the composition of other FTSE indices.
FTSE 250 gold miner Petropavlovsk [POG.L] is leaving the index after its share price dropped 90.2% since the start of the year, joining Capita [CPI], Cineworld [CINE] and Reach [RCH] in the exodus from the index. Tullow Oil is expected to replace the stock in the FTSE 250, sending its share price up more than 10% by midday on 7 March.
With the price of Brent crude hitting $139 a barrel during early trading on 6 March – its highest price since July 2008 – amid concerns that western countries will restrict Russian oil imports, shares in Tullow Oil could continue to rise.
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