Tullow Oil left at 'overweight' by Barclays after first quarter update

Barclays reiterated an ‘overweight’ rating and target price of 280p for Tullow Oil on Thursday after the oil producer reported its first quarter trading update.

The Africa-focused oil miner said first quarter production was slightly below expectations due to technical issues at the Jubilee field off Ghana, adding that 2016 capital expenditure would be cut by $100m to $1bn “with further savings expected”.

Group working interest production for the first quarter averaged 59,200 barrels per day for West Africa and 6,500 for Europe.

The company said it had to implement new Jubilee off-take procedures at the end of March following damage to a turret bearing.

Therefore, the group said full year 2016 average working interest production is likely to be below current guidance of 73,000-80,000 bopd and updated guidance will be provided when the new operating procedures have been fully implemented and stabilised.

“However, Tullow does not currently expect this issue to have a material impact on future cash flow, due to the imminent resumption of production and appropriate insurance policies in place,” the firm said.

The company also agreed a $3.5bn deal with its lenders to extend its borrowing facilities.

Barclays said the extension of the loan facility would "comprehensively address remaining concerns about the balance sheet”.

“The $1bn corporate facility has been extended by one year to April 2018 (commitments reduced to $800m from April 2017), sufficient to provide Tullow with at least $500m of financial headroom through 2017E,” it said.

The bank welcomed the cuts to capex and was also encouraged by news that Tullow’s Tweneboa-Enyenra-Ntomme (TEN) field off the coast of Ghana, which is due to deliver first oil this summer, is now 90% complete.

Shares jumped 7.66% to 270.55p at 1119 BST.