The Tullow share price jumps as oil goes higher! Should I buy?

The Tullow Oil share price has bounced up and down this year despite a soaring oil price. Here, I weigh up the risks vs potential reward in buying the shares.

| More on:
Shot of a young Black woman doing some paperwork in a modern office

Image source: Getty Images

The Tullow Oil (LSE:TLW) share price is down more than 90% over the past 10 years, but made small gains today. The London-headquartered firm was a highly promising hydrocarbons outfit that employed a more localised business model than the oil majors — coincidentally, this was the topic of my PhD research.

However, things didn’t go to plan. Challenges with host governments and two oil price collapses left the firm in a bad place.

Despite this, JP Morgan recently resumed its coverage of shares of Tullow Oil at “overweight“. So, maybe I should consider this stock for my portfolio?

Why did the share price collapse?

Tullow’s problems started much earlier than the pandemic. The firm — which focuses on frontier assets in nascent hydrocarbon producing economies — submitted its field development plans to the Ugandan government in 2013.

However, the Ugandan government delayed its response. In fact, Uganda still hasn’t achieved ‘first oil’. Observers suggested that President Yoweri Museveni was keen to develop local capabilities first to ensure that Uganda’s oil industry wouldn’t function as an economic enclave.

This hit the Tullow share price. But there was another issue in Uganda. Tullow became embroiled in a tax dispute with the government as it attempted to farm down its operations.

And this was compounded by the 2015-2016 oil price crash, which hit smaller producers more than the majors, which had more cash in reserve. The pandemic had the same impact with spot prices crashing towards $0.

Net debt climb into the billions, which still weighs on the balance sheet.

Is now the time to buy?

Analysts at JP Morgan recently deemed Tullow Oil to be “overweight” following a period of “restriction” after the announcement of the firm’s merger with another British independent, Capricorn.

The bank said that the combination of the two companies would be strategically beneficial. JP Morgan added that the merger would add scale in terms of both production and reserves while strengthening the balance sheet.

Due to Capricorn’s “significant” weighting to cash and Tullow’s share price, the latter would be paying only 56c for each dollar on the former’s balance sheet. Capricorn’s cash could be key to unlocking Tullow’s contingent resource potential.

JP Morgan set its price target at 82p, considerably above the current share price.

I’ve also largely avoided oil and mining stocks this year, anticipating that they would fall on the back of Chinese lockdowns. However, that hasn’t really happened and, looking at the long run, I think we’re entering a period of scarcity during which commodity prices will remain high.

Because of that, I’m inclined to think Tullow will be able to achieve the revenue it needs to start paying off it debt and continue growing its portfolio.

There’s also the matter of Tullow’s business model. The group looks to employ and operate more locally than other operators. It sponsors and trains hundreds of people in the countries in which it operates. And this makes Tullow an attractive operator for host governments as well as being leaner. In the long run, this should serve it well.


The biggest risks revolve around debt and another oil price collapse. The firm may struggle to survive if we entered another period of reduced oil prices.

Despite this, I’d buy Tullow at the current price. The merger and higher oil prices may give this firm a second chance.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

UK shares are cheap! So why is Warren Buffett ignoring them and should you too?

Many British shares are trading cheaply and pay dividends. This is normally the hunting ground for Warren Buffett, yet he's…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How I’ve increased my passive income by 600%

Finding the right opportunities can bring spectacular results. Here’s how our author has managed to increase his monthly passive income…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Could lithium shares make my Stocks and Shares ISA a goldmine?

Our writer is considering buying lithium shares for his Stocks and Shares ISA. Here, he outlines the decision process he…

Read more »