Westhouse upbeat on Tullow despite write-down woe

The broker kept its ‘buy’ stance, recommending investors to pick up shares on any weakness.

Tullow said it will take $2.3bn of write-downs (after tax) for the 2014 financial year following a poor exploration performance and the recent collapse in oil prices.

“They are writing off previously capitalised exploration costs (French Guiana, Mauritania and Norway), booking impairment charges (West African) and recognising disposal losses (Uganda),” Westhouse said.

“While these are all non-cash items, we believe that the market is likely to react negatively to the size of the write-off.”

Meanwhile, the broker said that 2014 production of 75,200 barrels of oil equivalents per day (boepd) was a “bit lower than expectations” and guidance for 69,000-77,000boepd for 2015 “looks a bit low”.

Tullow also guided to a gross profit of $0.6bn for 2014, down from $1.4bn previously, which also “looks weak, although this may be impacted by impairments”, analysts said.

“Tullow Oil, like so many other E&Ps, is battling to respond to the oil price collapse. They are taking the opportunity to kitchen sink most of the peripheral assets in the portfolio and there have been press reports of significant job cuts, and the trading statement says ‘a major internal review of Tullow's organisation is ongoing’,” Westhouse said.

“The fundamental long-term production/cashflow growth story remains intact in our view and we would be buyers of Tullow on any weakness.”

After an early gain, Tullow fell into the red by mid-morning and was down 1.1% at 353.9p by 10:13.