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Tullow rises after upgrade while Premier lifted by Norway sale

Discussion in 'Market News' started by Lily, Nov 16, 2015.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Oil companies benefit from higher crude prices and positive news

    Oil shares are being lifted by the rise in crude prices as global tensions rise, prompting talk of possible supply disruption from the Middle East.

    But Tullow Oil and Premier Oil are also higher for other reasons.

    Tullow came into the downturn highly geared and with substantial capital expenditure ahead to bring T.E.N [a project in Ghana] to first oil in mid-2016. Strategy switched to survival mode: a hard-hitting $500m cost plan saw headcount cut 40%, exploration spend down 75% to $250m and the dividend suspended. But this did not frame a compelling investment case and a hefty debt pile left the equity vulnerable to ‘lower for longer’ oil price narratives. But mission is accomplished and perceptions of a debt problem misplaced. This is a well- financed company with quality assets and a proven development track-record, offering long-term oil price exposure at the bottom of the cycle, yet well hedged at the front end (around 50% of 2016 estimated production at $75 a barrel).

    Our team in Norway has done an excellent job in bringing the Vette project close to a sanction decision in a low oil price environment. The transaction will realise immediate value from the project as part of our strategy of active management of our portfolio.

    The deal should complete before year end, bolsters the balance sheet and realises value (ahead of the $80m in our valuation) for a low profile part of the portfolio. It also removes any capital requirements for the Vette project that was progressing towards project sanction.

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