Overview
Tullow Oil PLC (LON: TLW) is a London, United Kingdom-headquartered leading independent oil exploration and production company which works across all stages of the oil life cycle from exploration to production. The group seeks to draw upon multiple resources and relationships to create value. It is focused on finding and monetising oil in Africa and South America, with interests in 80 exploration and production licences across 15 countries. 

Trading Update
On 13^th November 2019, Tullow Oil announced its trading update to 13^th November 2019.The company expects its average oil production from Ghana and non-operated portfolio to be 87,000 barrels for the full year 2019, which is lower than the earlier estimates given by the company due to decline in production performance in Ghana. The company estimated its Capital Expenditure for Full-year 2019 to be around $540 million, while the free cash flow is estimated at $350 million for the period. The net debt at the end of the period is estimated to be around $2.8 billion. The company’s Kenya project delivered first cargo exports of 240,000 barrels of oil from Mombasa region.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, $, million)

(Source: Interim Report, Company Website)
 
In the first half of the financial year 2019, the realised oil price after hedging for the period was $64.3/bbl (1H 2018: $67.5/bbl) and working interest production volume for the period averaged at 86,300 boepd (1H 2018: 79,100 boepd). Sales volume were 75,200 boepd and total revenue for the period was $872 million against $905 million in the prior year.  The gross profit grew to $526.5 million in H1 2019 from $520.8 million in H1 2018, as cost of sales declined significantly. As a result of the phasing of non-routine activity in the second half of 2019, underlying cash operating costs amounted to $145 million or $9.0/boe (1H 2018: $181 million; $10.9/boe), while the adjusted EBITDAX stood at $1,623 million against $1,579 million in H1 2018 and operating profit surged to $387.6 million in H1 FY19 versus $298.9 million in H1 2018. Due to a reduction in the average level of net debt in the first half of 2019 as compared to 2018 and foreign exchange gains, net financing costs for the period declined to $120 million (1H 2018: $145 million), contributing to the rise in pre-tax profit (continuing operations) of $268.4 million versus $150.5 million in H1 2018. The profit after tax for the year grew to $103.2 million in H1 2019, from $54.5 million reported in H1 2018 and basic earnings per share also increased to 7.4 cents as compared to basic earnings per share of 3.9 cents per share in H1 2018. The diluted earnings per share stood at 7.1 cents in H1 2019 as compared to diluted earnings per share of 3.7 cents per share in H1 2018. An interim dividend of 2.35¢/share was also approved for the period.

Share Price Performance

Daily Chart as at 22^nd November 2019, before the market closed (Source: Thomson Reuters)

On November 22, 2019, Tullow Oil Plc shares were trading at GBX 142.65 at the time of writing before the market close (at 8:15 AM GMT) and remained same against the last day closing price. Stock's 52 weeks High and Low are GBX 254.71/GBX 137.70.

Key Risks
The prices of various commodities which the company markets can be subject to significant fluctuations, and as the prices are affected by global supply and demand, the company does not have any influence on the market prices, which can lead to a significant impact on the financials and affect the business assumptions. Moreover, there is a risk of failure to deliver commercially attractive and timely Kenya development, in addition to the risk of disruption to business due to community and political influence. Inability to make new significant oil discoveries and replenish exploration and subsurface portfolio can also impact the long-term business operations.

Conclusion
For the full year 2019, the company expects to provide strong free cash flow. This has been supported by the commitment to decrease the debt further and pay returns to the shareholders with continued disciplined capital investment. The company released two oil discoveries in Guyana at the Joe-1 well and Jethro-1 well. The company also had decent progress with FID (Final Investment Decision) targeted in H2 FY2020. The non-operated assets maintain to perform well in West Africa. However, the company is operating carefully with the JV (Joint Venture) Partners to make sure that both fields work to their potential.

Based on the above rationale, we have given a "HOLD" recommendation at the current price of GBX 140.95 (as on 22^nd November 2019, before the market close at 8:00 AM GMT).

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