In my experience, some of the best stocks to buy are often among those that have suffered some major losses. Why? Because while rapid selling is typically caused by genuine problems, investors can often overreact. And every once in a while, this type of volatility can create some superb bargains for long-term investors.
Perhaps a perfect example of this is Rolls-Royce. After being one of the worst-performing stocks in the FTSE 100, it quickly turned into the best performer. And over the course of three years, smart long-term investors who saw the hidden potential have been handsomely rewarded with quadruple-digit gains!
Skip ahead to 2026, and Tullow Oil‘s (LSE:TLW) now among the worst-performing stocks in the UK, falling by a painful 70% over the last 12 months.
So has a Rolls-Royce-style buying opportunity emerged?
What happened to Tullow Oil?
As a quick introduction, Tullow Oil is an independent oil & gas exploration and production enterprise operating primarily out of Ghana with some exploration and decommissioning activities across Argentina and the UK respectively.
While oil & gas prices have suffered last year, the sector as a whole has proven to be fairly resilient, offsetting lower prices with higher production volumes. But for Tullow Oil, the story’s been quite different.
With its flagship oil fields in Ghana suffering reservoir pressure dips, production has struggled to keep up with internal targets. In its latest half-year results, total production volumes fell sharply from 63.7 thousand barrels of oil equivalents per day (kboepd) to just 50 thousand. And volumes have continued to decline since.
To make things worse, the company’s facing a bit of a debt crisis. Management has successfully been lowering its outstanding loans over the last five years. But the firm faces $1.3bn in bond maturities in four months from now.
Management is actively engaging with creditors to restructure or refinance. But that could translate into a debt-for-equity agreement. And if that happens, existing shareholders could get wiped out. With that in mind, it isn’t surprising the stock’s seemingly in free fall.
Is there any hope of a turnaround?
Despite the bleak outlook for this enterprise, there’s some room for cautious optimism. Wiping out equity holders may not be in the interest of debt holders since it destroys the company’s recovery value.
As such, creditors may entertain a maturity extension to give Tullow Oil some breathing space while it seeks to get production back on track.
New wells are scheduled to come online in the second half of 2026 and early 2027. And if oil prices start to climb again, the firm could further expand its financial flexibility to continue tackling its problematic debt and restore investor trust.
Is this likely to happen? Sadly, the current data suggests not.
The latest forecasts point towards further deterioration in oil & gas prices over the next two years. Ramping up production will ease some of the burden. But the company’s ideal production targets still fall firmly short of what’s required at $60 per barrel.
With that in mind, Tullow Oil definitely doesn’t look to me like a top stock to consider buying. But luckily for investors seeking exposure to the oil & gas industry, there are plenty of other undervalued UK stocks in this sector to explore.
