Canaccord axes target on Tullow Oil after 'disastrous' update

During the previous session, Tullow cut its outlook for production from the TEN field offshore Ghana, suspended its dividend pay-out and announced the exit of various senior managers.

In a research note sent to clients, Canaccord's Charllie Sharp explained that the former was the main reason behind the ensuing share price drop, as it would cut the company's free cash flow, restrain its exploration plans and raise material concerns about its ability to meet its debt repayments which "become onerous from 2021 onwards".

As in other episodes in the past at other trouble exploration companies, the analyst was left anticipating a "dramatic" reduction in Tullow's capital expenditures, credit maturity extensions, asset sales and a rights issue.

"Further asset underperformance and/or weaker oil prices would raise the balance sheet stress especially in 2021 when the debt repayment schedule ramps up. Outlook for equity: hairshirt at best," Sharp said.

Canaccord cuts its recommendation for the shares from 'speculative buy' to 'hold' and its target price from 220.0p to 60.0p.