The Tullow Oil (LSE:TLW) share price has tanked over the past month. In fact, the stock is down 27% over the past 30 days — not a good return for shareholders.
But today, the independent oil and gas operator made up for some of the losses as it jumped 3% in early morning trading.
Despite doing plenty of research on Tullow for my PhD, I’ve never invested in the company. But maybe I should reconsider. So, let’s see if it’s right for my portfolio.
What’s been moving the Tullow share price?
Tullow once traded for 1,500p a share, today it trades for just 40p. It was a promising hydrocarbons firm that looked to approach the industry with a new, more localised, business model.
However, it experienced several setbacks.
The London-headquartered firm focuses on frontier oil markets like Uganda, Ghana and Kenya. Uganda was one of its most promising assets.
Tullow submitted its field development plans to the Ugandan government in 2013. However, the government never responded, despite the British oil company having a positive reputation among Ugandan civil servants and others in the industry.
To add insult to injury, Tullow was hit with a massive tax bill when it tried to farm down its operations to Total and CNOC.
Events in Uganda were compounded by two oil price crashes.
The company had been making gains this year until the oil price weakened in recent weeks.
Tullow said it closed last year with net debt of just over $2.1bn. That was down from the near $2.4bn in debt it held at the end of 2020.
That’s a lot of debt for a company with a market cap of just over £500m.
A recently announced merger with British independent Capricorn might help address this. Capricorn has a significant cash weighting that should assist Tullow in progressing some of its development projects.
JP Morgan suggested that Capricorn’s cash could de-risk Tullow’s operations in Kenya.
In the current high oil price environment, Tullow will want to get all of its assets on-line in order to maximise revenue and hopefully start reducing debt.
However, oil prices are the core determinant of the profitability of oil companies. And right now, nobody really knows where they’re going to go.
This week alone, we’ve had several contrasting forecasts from reputable institutions.
Citi Group suggested oil could fall to $65 a barrel this year and slump to $45 by end-2023. Meanwhile, JP Morgan suggested it could rise as high as $380 if Russia stops exporting to G7 nations.
Personally, I see oil falling on weak economic data and continued Chinese lockdowns as we approach the end of the year.
Is it right for my portfolio?
I would buy Tullow stock now as I think, in the long run, we’re entering an era of scarcity characterised by higher commodity prices. This will be good for oil stocks, particularly Tullow which needs to reduce its debt burden.
However, there could well be better entry points later this year as I predict oil will fall in the near term.