Oil firm Tullow Oil (TLW) reveals a solid end to a year of transition. The business ran into trouble after a 2014 collapse in the oil price.
But the shares are up only 1.5% to 224.6p on Wednesday with the market still reluctant to get too carried away with its recovery potential.
CASH FLOW IMPROVES
Today's statement reveals 2017 free cash flow of $500m, ahead of expectations. Along with the $750m rights issue in April, this is helping to bolster the balance sheet, with a significant improvement in its net debt position - down $1.3bn over the course of the year to $3.5bn.
The strong cash generation is underpinned by tight control of costs, higher oil prices and rising production, aided by an increased contribution from its TEN field in Ghana.
This means the net debt to earnings ratio is expected to be less than three-times. Tullow is targeting a sub-2.5 times ratio in time.
PRODUCTION POWER
Average output comes in at 94,700 barrels of oil equivalent per day compared with 71,700 boepd in 2016. Guidance is for 2018 output to be between 86,000 boepd and 95,000 boepd with capital expenditure of $460m.
Davy analyst Job Langbroek is impressed: ‘A strong production performance in the second half rounds off a better overall year, with Tullow exiting 2017 on a much-improved footing.
‘A material improvement in debt metrics and strong free cash flow are two outcomes from continued control on costs, asset management and a better price environment.’
Full year results are published on 7 February.
