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Tullow Oil share price: How I’d invest after its 30% increase today

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As I write this Wednesday afternoon, the Tullow Oil (LSE: TLW) share price is up 30% from yesterday’s close. The sharp rise in the TLW share price follows the Ugandan government’s approval of its asset sale. This had been pending since 2017. The jump is enough to gain investor attention, but does it change the long-term investing perspective on the TLW stock? That’s the question I’m most interested in now.

How far has the TLW share price come?

To figure out the answer, my starting point is to go back to my last article on TLW in January this year to see how things have changed. There weren’t strong drivers for the TLW share price at the time. For instance, its financials weren’t bad, but they weren’t great either. Oil prices had just spiked, but there was no reason to believe that the spike would be sustainable. And coronavirus had just started impacting the broader economy. In fact, I had said that 2020 may well be muted for the oil producer. 

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We now know how the year has turned out, not just for oil companies but almost all sectors. For the first half of 2020, TLW reported falling revenues and gross profit, rising costs and debt, and a post tax loss. Going by the current state of business, it appears unlikely that fortunes for the TLW share price will change dramatically in the near future. 

Ugandan assets sale

Tullow’s sale of its Ugandan assets sale will bring in $500m when the transaction closes, and another $75m when the final investment decision is made on the project. In my view, a one-time sale doesn’t improve the long-term investing case for the company. There’s potential for payments contingent on production to come through as well, but there’s little other information on this. As and when it becomes clearer, I think it can be added to the perspective on TLW. 

As of now, the fact remains that the Tullow Oil share price is still dragged down by the economic slowdown and weak oil prices seen this year. If we compare it to the pre-coronavirus times, only limited improvement is visible despite the sharp increase today. The weak price trend is true across the sector. Oil companies, including FTSE 100 biggies like BP and Royal Dutch Shell have seen exceptionally hard times in 2020, too. 

Next steps

The TLW share price increase calls out for attention, but in my view, it doesn’t change perspective on the stock as an investment. This is especially so, as it has a tendency to be volatile. So it’s important to take the noise with a pinch of salt. I’d wait for a turnaround in the broader environment before considering buying TLW. Until such time, I’d consider buying shares that have a surer growth path and are backed by a supportive or improving environment as well. FTSE 100 stocks like the London Stock Exchange Group and Ashtead are examples of this. 

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Manika Premsingh owns shares of BP. 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.

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