RBC Capital ups Tullow to 'outperform', says it's gaining momentum

RBC Capital Markets upgraded its stance on Tullow Oil to 'outperform' from 'sector perform' and lifted the price target to 260p from 200p.

The bank said Tullow is gaining momentum as it re-starts the development of the TEN fields offshore Ghana and resolves the Jubilee turret issue.

"Combined with a firmer oil price these fields should underpin a year-end refinancing that allows management to redirect investors' attention towards its value creation (Guyana and Kenya) and harvesting (Ghana and Uganda) activities."

Over the weekend, the International Tribunal for the Law of the Sea concluded its three-year assessment of the Ghana/Cote d’Ivoire border dispute and its ruling, that the border remains to the west of the TEN fields, has released the brakes on the stalled development. RBC now expects Tullow’s updates on 8 November and 10 January to focus on the business returning to normal.

It thinks likely initiatives include the completion of the TEN development drilling campaign and the re-start of infill drilling on Jubilee. RBC reckons Tullow could be targeting a year-end exit rate of more than 100,000 barrels per day, up from its first-half average of 82,500 barrels of oil equivalent per day. It also sees potential for resource growth in October, when Tullow drills its first high-impact exploration well offshore Suriname.

"With debt under control and a tight rein on spending, exploration and development campaigns should now drive sustainable growth. Having been shunned by many investors, the stock has some catching up to do, and given its oil price leverage we expect Tullow to outperform many of its peers in the current, rising oil price environment."

At 1300 BST, the shares were up 2% to 193.30p.