Tullow Oil promises dividend as it records first profit in five years
Tullow Oil reported its first net profit in five years today, as its West Africa business boosted both its top and bottom lines in 2018.
The figures
Revenue climbed seven per cent year on year to $1.85bn (£1.4bn) for last year Tullow revealed today, as it recorded post-tax profit of $85m – up from a $175m loss in 2017.
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Earnings per share grew to $0.61 after a loss per share of $0.14 in 2017.
However, cash flow fell 24 per cent to $411m from $543m the year before as Tullow paid down its debt, slashing net debt by $411m to take it down to $3.06bn.
The board has recommended a final dividend of $0.48 per share payable in May.
Why it’s interesting
Investors welcomed the forthcoming dividend after years of waiting, with Tullow’s stock climbing four per cent to 219.5p in early trading today as operating costs dropped to $10 per barrel.
Previously the oil firm has been hit by lower oil prices and high levels of debt, as well as delays to its production in Africa, which analysts have criticised as being high-risk.
Those issues led to a rights issue two years ago as Tullow aimed to steady its balance sheet, but now it is promising to pay a dividend as it gets to grips with its debt.
However, Hargreaves Lansdown equity analyst George Salmon warned that the focus on paying a dividend may have come too early with such high levels of debt.
“Tullow’s ratio of net debt to cash profits is still pretty lofty, and the group’s continued recovery depends on the oil price behaving itself,” he pointed out.
“It doesn’t help matters that operations are focused almost entirely on the Ghanaian Coast, concentrating risks even further.”
While The Share Centre concurred on the level of risk, investment research analyst Graham Spooner said shareholders are optimistic about Tullow’s prospects.
“Investors with long memories will be hoping that the group can return to exciting oil discoveries and will be keeping their fingers crossed regarding new oil finds in 2019, especially relating to its move across the Atlantic to Guyana, where drilling is planned for the second quarter,” he said.
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What Tullow Oil said
Chief executive Paul McDade said Tullow’s efforts to strengthen its balance sheet has enabled it to offer investors a return on this year’s results.
“Our high-margin producing assets in West Africa, substantial development assets in East Africa and exploration licences in industry hotspots provide Tullow with a strong foundation for growth in the years ahead," he added.