Business Overview
Tullow Oil Plc (LON: TLW) is a leading oil & gas exploration and production company. The company has its business across 15 countries. The company manages production activities and developments across Africa, South America, Europe and Kenya.

Recent News
On 2nd January 2020, the company announced that the Carapa-1 exploration well had expanded the prolific Cretaceous oil play into the company’s Guyana acreage and had encountered around four metres of net oil pay based on preliminary interpretation.

Trading Update - FY2019 (31^st December 2019, USD, Billion)
On 15^th January 2020, the company issued its trading update for the financial year 2019.

(Source: Interim Report, Company Website)

In the financial year 2019, the company’s revenue was USD 1.7 billion primarily driven by the realised post-hedge oil price of $63/bbl. The company’s gross profit was USD 0.7 billion. In the fiscal year 2019, the company’s capital expenditure was USD 490 million. Free cash flow for FY2019 is expected to be $350 million. The net debt reduced to USD 2.8 billion with gearing around 2.0 times. For 2020, the company expected capital expenditure of $350 million, with an additional $100 million expected to be spent on decommissioning.

The company would provide a full financial and operational results for FY2019 on 12 March 2020.

Share Price Performance

Daily Chart as on 23^rdJanuary 2020, before the market closed (Source: Thomson Reuters)


On January 23^rd, 2020 Tullow Oil Plc shares were trading at GBX 50.61 at the time of writing before the market close (at 8:23 AM GMT), up by 2.0 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 254.71/GBX 38.05.

Valuation Methodology


Conclusion
The company’s financial performance has declined during the fiscal year 2019. The company is facing multiple internal as well as external issues such as change in management, economic factors, etc. which are hindering its growth. Other risks and uncertainties include financial risk, liquidity risk, economic and political risk and cyber risk which could affect the overall business of the company. The company forecasted its production to average between 70,000 and 80,000 bopd in the year 2020 and average around 70,000 bopd for the following three years. With positive implications for both the Orinduik and Kanuku blocks, the Carapa-1 result is an essential exploration outcome. While reservoir development and net pay at this site are lower than the pre-drill estimates, the company is generating enough free cash for the growth of the business of the company. The company’s fundamentals have remained intact and it retained a high-quality exploration portfolio. The company looks promising and sustainable for the long term.

The company’s revenue and gross profit have grown from $1,606.6 million and $591.3 million respectively in FY 2015 to $2,047.6 million and $1,081.6 million in FY 2018, delivering growth of 8.4 per cent and 22.3 per cent respectively on CAGR basis.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 48.54 (as on 23rd January 2020 at 8:10 AM GMT) with lower double-digit upside potential based on 5.6x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

 
*All forecasted figures and information have been taken from Thomson Reuters.                                                            
*Currency exchange rate taken for 1 US Dollar = 0.76 GBP.

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