UK share markets are trading fractionally lower on Wednesday. But the Tullow Oil (LSE: TLW) share price isn’t suffering from weak investor appetite in midweek trade. Indeed, its share price is up 2% at 53.2p after the oilie released full-year results for 2020.
Tullow hit 54.6p per share earlier today to reach levels not seen for almost 14 months. The oil giant has now more than doubled in value in just six weeks. But can Tullow Oil keep the run going? And should I buy the UK share for my Stocks and Shares ISA?
Revenues and profits slump
Unsurprisingly, Tullow Oil saw both revenues and profits plummet in 2020 as Covid-19 lockdowns and travel restrictions smashed oil demand. Turnover tanked 17% year-on-year to $1.4bn as the price Tullow got for its product slipped. The average price of its oil slipped to $50.90 per barrel versus $62.40 a barrel in 2019.
Tullow Oil also saw production fall sharply in 2020. The black gold producer saw its working interest drop 12% year-on-year in 2020 to 74,900 barrels, it said. This decline reflected field cuts and water declines in Tullow’s key producing market of Ghana, it said, as well as production cuts at its Gabon operations as per OPEC+ requirements.
In Ghana, combined production from its TEN and Jubilee assets slipped around 10m barrels year-on-year to 52.4m barrels.
This fresh revenues slump meant annual gross profit at Tullow dropped 47% in 2020 to $403m.
However, it wasn’t all bad news for the UK oil share last year. Net debt dropped by a chunky $430m year-on-year to stand at $2.38bn, helped by the recent sale of assets in Uganda. Meanwhile, free cash flow at the business improved to $432m, from $355m in 2019.
Should I buy Tullow Oil shares?
Tullow Oil said it expects group production to fall again in 2021, to between 60,000 and 66,000 barrels. This figure will be adjusted according to completed asset sales in Equatorial Guinea and Gabon, it added.
But Tullow Oil struck a more upbeat tone beyond this year. It said that “investment focused on [our] cash generative producing assets in West Africa is expected to increase production in 2022 and sustain it for the longer term.”
Investor appetite for Tullow Oil’s shares continues to strengthen. But I won’t buy the UK fossil fuel share for my own shares portfolio. The business of searching for and then producing crude is naturally packed with risk. But this isn’t all that’s discouraging me.
I’m worried that mountains of fresh supply are about to come online at the same time as the rise of green energy casts a shadow over future demand. This threatens to hit Tullow Oil’s revenues hard.
On the plus side, Tullow’s balance sheet is in much ruder health than it has been. And its plan to focus on low-cost and higher-cash-producing assets in West Africa over the next decade could produce handsome shareholder returns beyond 2021. But it’s still a risk too far for me.