Canaccord Genuity downgrades Tullow oil to 'sell'

Canaccord said on Wednesday that "credit matters", noting that Tullow's recent trading statement highlighted the scale of the operational and financial task ahead, while the company's creditor repayment schedule, a combination of bond maturities and amortising reserve-based lending, doesn't exactly allow it much wiggle room to complete its mission.

"Success requires the successful turnaround of recent production declines and the continued support of a varied group of creditors," said Canaccord.

"Given the scale of the total debt outstanding (circa $3.3bn), the sensible (though not risk-free) long-term development plan, and the improved oil prices, we would expect widespread creditor support. However, the cost of that continued backing may be significant."

Despite the downgrade, the Canadian bank thinks Tullow's plan makes sense but again stated the task was "large" and highlighted that its degree of success remained uncertain.

Furthermore, Canaccord stated that initial progress was likely to be "slow", with in-field activities starting in mid-2021 and only delivering an operating cashflow impact from 2022 and significant balance sheet benefits from 2023.