BMO upgrades Tullow Oil to 'outperform'

“The oil exploration and production industry is a risky asset class, however Tullow Oil has shown itself capable to adapt to the lower oil price environment, as well as adapting to a better understanding of the capital allocation and development risks presented by its exploration success in Africa.”

BMO said the recent share price performance has eroded some of the near-term upside.

It argued that by farming down exposure to both oil projects in East Africa, which are now being pursued as two independent ventures, Tullow can achieve carry to first oil and more than $500m of surplus cash that can be used to de-lever the balance sheet.

In addition, BMO said the delivery of first oil at the TEN project in Ghana, which is expected in July or August, may further unlock the company’s ability to return to value creative exploration over the next 12-18 months.

BMO said it has upped its core net asset vaue to 310p from 194p based on the increase of recoverable resources in Kenya to around 750mmbbl; near-term delivery of TEN; anticipated insurance protection of Jubilee cash flows; Uganda pipeline route progress and finally, the farm-down progress of East Africa.

At 1048 BST, Tullow shares were up 3.7% to 254.20p.