Tullow Oil PLC

Tullow Oil PLC (LSE: TLW) is a FTSE 250 listed entity, engaged in oil & gas exploration and production. The company has business across 15 countries. The company manages production activities and developments across Africa, South America, Europe, and Kenya. This Report covers the Key Recommendation Rationale, Conclusion, and Recommendation on the stock.

Key Recommendation Rationale – Sell at GBX 15.64

• Decline in Revenue and Volume: The group reported decline in total revenue to $1,535 million in 2024, down from $1,634 million in 2023, reflecting weaker realized oil prices and lower lifting volumes. Daily sales volumes decreased from 55,754 boepd to 52,421 boepd, indicating production and marketing headwinds amid softer pricing dynamics.

• Exploration Write-offs Impact Profitability: The company recorded $213 million in exploration costs written off in FY2024 compared to only $27 million in FY2023. This included a $145 million impairment in Kenya due to delayed development timelines, along with further write-offs in Argentina ($39 million), Côte d’Ivoire ($16 million), and Gabon ($10 million), signalling weaker commercial viability across key projects.

• Decline in 2P Reserves Reflects Asset Reassessment: Audited 2P reserves declined to 164.5 mmboe from 212.2 mmboe in the prior year — a net reduction of 47.7 mmboe. While 22.4 mmboe was attributed to production depletion, the rest stemmed from reserve downgrades, particularly at Jubilee.

• Free Cash Flow Fell Despite Lower Capex: Free cash flow narrowed to $156 million from $170 million in the previous year, even after capital expenditure was reduced from $380 million to $231 million.

• Macroeconomic Risk: The market sentiments can remain weak in the short term due to the subdued consumer disposable income, geopolitical tensions, and political risks.

Valuation Methodology: Price/ Earnings Approach

Share Price Chart  

Conclusion

TLW is expected to trade at a discount, pressured by declining revenue and volumes that signal commercial headwinds, substantial exploration write-offs that impacted profitability, and a sharp reduction in 2P reserves reflecting asset reassessment. Additionally, a high tax burden diluted pre-tax gains, while free cash flow contracted despite reduced capex, indicating cash flow strain. These challenges are compounded by ongoing structural burdens, including policy-related disadvantages and persistent inflation, which are likely to constrain near-term profitability. For conducting the valuation, the following peers have been considered: Serica Energy PLC (LSE: SQZ), BP. PLC (LSE: BP.), etc.

Given its current trading levels, the recent financial performance, strategic investments and partnerships, market expansion and cost optimization strategies, relative valuation, and associated risks, it is prudent to exit the stock at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the Closing Market Price of GBX 15.64 as of 13 May 2025. 

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 13 May 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.