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Is there finally hope for Tullow Oil’s share price within the FTSE 250?


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Might now be the right time to buy Tullow Oil shares ahead of Wednesday’s trading statement?

Tullow OilSource: Bloomberg
 
 Axel Rudolph | Market Analyst, London | Publication date: Tuesday 12 July 2022 

Is now the right time to buy Tullow Oil shares?

It has been a tough decade for Tullow Oil shareholders with the company’s share price slipping by close to 99% from over 150 pence in 2012 to under 10 pence at its March 2020 pandemic low, despite the majority of fundamental analysts sticking to their guns and rating it as a ‘hold’, even over the past few years.

As Tullow Oil’s share price once more seems to bounce off the 40p region ahead of Wednesday’s trading statement, however, as it did in August, September, November and December 2021, now might be a good time to buy the multinational oil and gas exploration company’s shares with a tight stop.

Tullow Oil monthly chartSource: ProRealTime

 

After all the independent oil and gas operator has been making great strides to clear the debt from its balance sheet while increasing production volumes.

Recent news of a merger with Capricorn Energy and a deal with Petrofac is also likely to benefit Tullow Oil’s share price in the medium- to long-term.

In Wednesday’s trading statement and operational update, investors should gain a better understanding on how these recent deals will benefit the company.

Full-year (FY) 2021 results showed a gross profit of $634 million, with the loss after tax reduced to $81m from $1.2 billion in 2020 when it had to let go of one-third of its staff. Debt has also been reduced to $2.1bn, down from $2.3bn in 2020 and $3bn in 2019.

Nonetheless that’s still a high level of debt for a company with a market cap of just over £500m.

Could the merger with Capricorn Energy boost Tullow Oil’s share price?

In early June, the London-listed oil firm confirmed a £1.4bn merger with its British independent rival, Capricorn Energy. The deal will see shareholders receive approximately 3.8 Tullow shares for each Capricorn share they hold, with Tullow shareholders retaining a 53% equity stake in the combined company, and Capricorn shareholders owning 47%.

Capricorn has a significant amount of cash on its books that should assist Tullow in moving forward some of its development projects and which could re-risk its operations. It is also hoped the merger will eventually result in annual savings of $50m.

Tullow Oil, founded in 1985 and headquartered in London, also announced on 5 July that it had done a deal with Petrofac, which will provide operations services at a development project in Ghana.

Tullow Oil is primarily active in Africa and South America and as of December 31, 2021, its portfolio contains 30 licenses with 30 producing wells in eight countries.

Tullow Oil weekly chartSource: ProRealTime

 

Where to next for Tullow Oil’s share price?

With the March low at 46p about to be hit, the question will be whether a rise above this level can ensue, in which case the May low and 200-day simple moving average (SMA) at 50p to 50.86p could be reached over the coming weeks.

The last few days’ advance has been promising since when a series of up days have been seen in the course of this year, more often than not, a positive follow through has taken the share price higher still. If this were to occur this time round as well and if the 200-day SMA at 50.86p could be surpassed, this year’s January, March and April highs at 61p to 63p may be reached.

Only a fall through and daily chart close below last week’s low at 40p would indicate the continuation of the April-to-July downtrend with the January 2021 low at 23p being in focus in such a scenario.

With this in mind buying Tullow Oil shares ahead of Wednesday’s trading update at around the current 45p mark with a stop-loss at 39p and a medium-term upside target at 60p might make sense from a risk/reward point of view as the potential reward is more than twice as large as the potential loss.

Tullow Oil daily chartSource: ProRealTime
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