Tullow Oil tumbles as HSBC slashes price target

Shares in Tullow Oil were under pressure after HSBC slashed its price target on the stock to 310p from 514p to reflect the bank’s lowered oil price assumptions.

On 31 August, HSBC cut its Brent price assumption to $55.4 a barrel for 2015 from $62.5. For 2016-2018, the bank now expects an annual progression of $60/70/80 a barrel versus $75/90/105 previously.

Nevertheless, it said it continues to see significant upside in Tullow. It noted that the TEN project in Ghana is now more than 65% complete and remains on track for first oil mid-2016.

Once on stream, HSBC expects the project will contribute to a significant turnaround in Tullow’s free cash flow. In addition, it said the group’s East Africa projects reached a key milestone recently with the Ugandan and Kenyan governments’ agreement on a pipeline route that allows both projects to move forward towards a final investment decision by end-2016/early 2017.

HSBC said there have been concerns over Tullow’s balance sheet due to lower oil prices in a period of large development spending requirements. The bank said that although its finances are undoubtedly under pressure from the current crude price environment, these risks have been fully discounted by a 51% drop in the share price year to date.

The bank added that Tullow has acted decisively to reduce its cash burn.

HSBC rates the stock at ‘buy’.

At 1038 BST, Tullow shares were down 5.9% at 195.50p.