News the TEN project offshore Ghana will come on stream as planned in the next three to six weeks provides a boost to FTSE 250 oil play Tullow (TLW), up 6% to 268.1p.

This positive operational progress allows the market to ignore a 37.5% slide in first half revenue to $500 million. As we discussed here, the cash flow from TEN is key to addressing the company’s substantial net debt which totalled $4.7 billion at the end of June. The company reckons it has headroom of $1 billion based on unused debt capacity and free cash.

A gradual ramp-up in oil production towards the FPSO (floating production storage and offloading) unit’s capacity of 80,000 barrels of oil per day (bopd) is anticipated around the end of 2016 as the facilities complete performance testing and wells are brought up to optimum rates. Tullow estimates that TEN’s average annualised production in 2016 will be around 23,000 bopd gross and 11,000 bopd net.

Stephane Foucaud, analyst at FirstEnergy Capital, comments: ‘The balance sheet deleveraging phase has already probably now started and we believe that the company is now "out of the woods". Starting drilling again exploration wells in Kenya is another important sign that TLW starts looking beyond TEN.’

Foucaud rates the shares ‘market perform’ and has a price target of 250p and adds: ’The shares are however not cheap anymore.’

Issue Date: 30 Jun 2016