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Summary
- The poor stock performance of Tullow Oil Plc has come despite strong revenue performance reported by the company in the first half of 2020.
- The major reason that has been responsible for the poor stock performance during the year is the weakness in crude prices that has marred the entire industry.
- The company has forecast a better production performance for the second half of the year, though its sales revenue hedge is significantly lower for 2021 compared to 2020.
It is a curious case with Tullow Oil Plc this year. Despite the company pulling out a superior performance on the production front, its revenues have suffered in the first half of the year, and its stock prices have been on a continuous downward slide. This small crude oil producer seems to have fallen victim to the macro factors that have badly affected the global crude oil market, which has made its impact felt on the strongest and the largest oil & gas companies in the world.
Tullow's mostly upstream operations have been relatively less impacted by the pandemic, but the restructuring plan initiated by the company since December 2019 has been the primary reason, the company was able to streamline and achieve substantial savings. The one worrying factor, however, is the falling prices of crude in the spot as well as the futures markets, that would continue to impact the company's bottom line. While in 2020 the company has been able to hedge 60 per cent of its sales revenue at a floor of $57.00 per barrel, 48 per cent of its 2021 hedges have been done at a floor price of $51 per barrel.
The revenue performance of Tullow Oil Plc for the first half of 2020
For the first half of 2020, Tullow Oil has given a strong production performance. During the period, the company produced 77,700 barrels of crude on an average per day, which was as per expectations. The revenue during the period was $731 million compared to $872 million reported in the first half of 2019. The gross profit during the period, however, tumbled sharply from $572 million reported for the first of 2019 to $164 million reported for the first half of 2020. The loss after tax of the company for the first half of 2020 was $1.327 billion compared to a profit after tax of $103 million reported for the first half of 2019.
The company's net debts at the end of H1 2020 stood at $3.019 billion, while at the end of H1 2019 it stood at $2.984 billion. The company's net gearing has also changed during the one year period, while it stood at 1.8 at the end of H1 2019, now at the end of H1 2020, it stands at 3.0. The company also had a negative free cash flow of $ 213 million for H1 2020, while it had a positive free cash flow of $ 181 million for H1 2019.
The pandemic brunt on the crude oil market
The coronavirus pandemic had a devastating impact on the international crude oil market. Immediately after the first news of the people getting sick in china because of the pandemic, factories and transportation systems were shut in the country leading to sudden fall in demand for crude from there. Over a period of the next few months when the pandemic started to spread into different parts of the world, there also partial and complete lockdowns were imposed. Thus over a period of a few months, the demand for crude oil plummeted so sharply it had seldom been observed before. The prices of crude also started to follow demand and historic lows in the months of March and April. After the reopening of most of the major economies in the world, production and transportation activities have been very slow to pick up the pace. Moreover, the existing inventories with major oil producers are also putting downward pressure on small and midsized crude producers to the effect that they are running out of storage spaces. Tullow Oil Plc will continue to face a challenging trading environment for the next couple of quarters before any change is the situation can be expected.
The share price performance of Tullow oil Plc on the LSE since the beginning of the year
(Source- Thomson Reuters)
The shares of Tullow Oil Plc have been on a downward trend on the London Stock Exchange since the starting of 2020, except for a minor uptrend in months of June month after the lockdown was withdrawn in the country. On 2 January 2020, the shares of the company traded at GBX 59.66 per share and hit a low of GBX 7.55 per share on 18 March 2020, just before the lockdown was imposed in the UK. Thereafter the shares rose again and reached a peak of GBX 38.17 on 8 June 2020, before embarking on a downward trend once again. The shares of the company were trading at GBX 14.96 per share on 01 October 2020 (11.07 AM GMT+1) losing 1.94 per cent over the previous day’s close
Tullow Oil Plc (LON:TLW) - is an LSE listed company having business interest in oil & gas exploration and production. The company has its business spread over 15 countries. The company manages production activities and developments across Africa, South America, Europe, and Kenya.
Conclusion
The current performance of the company is marred by an adverse business environment which is keeping its stocks depressed on the stock exchange. The company's production, revenues and operations are robust, and it has all the reasons to come out of this slump stronger.
The demand for crude oil and its derived products is likely to see a bounce back in the coming days as pent up demand for factory-produced goods and bulk transport of commodities from one country to other comes to the fore.
