Tullow to benefit from oil price rise

The Tullow share price fell by 10 per cent to €6.80 this week following the placing of 67 million new shares. However, with a huge increase in its reserves and its banking facilities in place, Tullow is well-placed to benefit from any increase in the oil price.

Announcing the placing, Tullow boss Aidan Heavey also revealed a major increase in Tullow’s oil reserves from 550 million barrels to 800 million. It is now clear that Tullow has made a major discovery in Ghana with the field likely to contain reserves of at least 1.2 billion and possibly up to 1.8 billion barrels of oil. Elsewhere in Africa, Tullow has also made a major discovery in Uganda.

In addition to the €425m which the company is raising from the share placing, Tullow is also increasing its existing credit facility from €1.15bn to $2bn.

That’s the good news. The bad news is that the oil price is stuck at $45, down almost 70 per cent from its mid-July peak.

However, even with the oil price in the doldrums and the increase in the number of Tullow shares, the firm’s market capitalisation (including the new shares) of €5.4bn still works out at just €6.76 a barrel. With the funding now in place to develop the Ghana field, Tullow is well-positioned to benefit from any increase in crude oil prices. If you are an oil-price bull then Tullow is a definite “buy”.

Source: Independent