Oil prices might remain under considerable pressure but investors are still reacting very positively to a year end update from Tullow Oil (TLW) - marking the shares 11.4% higher to 137p.

This is a relief rally as investors recognise a reduction in short-term financial risk. Despite weak commodity prices, operating cash flow of $1 billion was ahead of the $800 million forecast by RBC Capital markets, spending was limited to $1.7 billion and will be scaled back to $1.1 billion in 2016.

Net debt at $4 billion came in below both company guidance and RBC's forecast $4.4 billion. On this basis the company sees financial headroom of $1.9 billion.

Production guidance for 2016 stands at 78,000 to 87,000 barrels of oil equivalent per day.

Tullow has some breathing space but unless there is a recovery in the oil price it is hard to see the stock maintaining this momentum.

RBC, which has an outperform rating on the stock and a 260p price target, admits the firm's destiny is tied up with that of crude. 'The tone of Tullow's update was positive and relatively conservative – the company expects to maintain sufficient liquidity throughout 2016; however, the stock is likely to continue trading in line with the oil price gyrations.'




Issue Date: 13 Jan 2016