Berenberg reaffirms 'hold' rating on Tullow Oil despite 'disappointing update'

Berenberg was let down by Tullow's update, both in terms of the company's operational performance and delays in Uganda, and expected the stock to underperform as a result.

However, the German bank said this underperformance "may well be temporary" as the market looked set to focus on the firm's Guyana exploration, one of the most attractive exploration programmes of 2019, which was due to commence in June.

First-quarter production averaged just 84,600 barrels of oil per day, leading to full-year production guidance being revised down to 90-85 kboepd from 93-101 kboepd previously, on the back of issues in Ghana and a delay in completing a production well at the TEN fields.

But Berenberg emphasised how both those issues had now been resolved and hence Tullow's expectation that production would increase into year-end.

Elsewhere, Tullow expects a final investment decision on its Ugandan operations in the second half and Berenberg noted that approval of a farm-down would result in a cash payment of $210m to the group.

All in all, Berenberg said: "We have lowered our 2019 average production to reflect a weaker start to the year, keeping our 'hold' rating and 230p price target unchanged."