Discounted Tullow offers exposure to growing low-cost oil production - Barclays

Barclays reinstated its 'overweight' rating on Tullow Oil on Wednesday as the company nears completion of its two-year restructuring of its debt, costs and portfolio.

Barclays, which has a 220p price target on the shares, said a debt refinancing is the last item outstanding on the corproate re-set, following the recent $750m rights issue.

"This journey has required many difficult decisions, but we believe the end result is a balanced E&P business with a portfolio that can grow and remain self-sufficient in a $50/bbl oil environment."

Analysts see Tullow as offering investors "exposure to rising low-cost oil production" from the Jubilee and TEN fields offshore Ghana that are generating free cash flow, while a further phase of medium-term growth comes from Uganda and Kenya.

Barclays estimates the rights issue, farm down in Uganda and planned debt refinancing combine to allow Tullow with the financial platform to fund infill drilling in Ghana, complete appraisal and pre-development work in Kenya and maintain an active exploration capability through 2019 at Brent crude prices as low as $40 per barrel.

"The possibility of asset sales in 2018 can accelerate the company’s deleveraging plans and fund a return to the company’s traditional strengths as a frontier explorer."