Will Tullow Oil plc Keep Beating Centrica PLC, Premier Oil PLC, BP plc And Royal Dutch Shell Plc After Today’s Update?

Does Tullow Oil plc (LON:TLW) (LSE:TLW.L) have more investment appeal than Centrica PLC (LON:CNA) (LSE:CNA.L), Premier Oil PLC (LON:PMO) (LSE:PMO.L), BP plc (LON:BP) (LSE:BP.L) and Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L)?

Tullow Oil plc
Tullow Oil plc

Tullow Oil plc (LON:TLW) (LSE:TLW.L) has released results for FY2016. Revenue declined 21% to $1269.9 million, while its post-tax loss of $0.6 billion was 42% improved against the previous year. The company registered positive free cash flow in Q4 2016 after the first oil from TEN flowed. This higher free cash flow will help the business to improve on its financial position in my view.

The delivery of TEN on time and on budget was probably the biggest and most important event of the year for Tullow Oil in my opinion. It should allow the company to now begin the process of deleveraging its balance sheet. The company has net debt of $4.8 billion, with significant facility headroom. Tullow Oil also expects to trim capex in 2017. It is forecast to fall from $0.9 billion in 2016 to around $0.5 billion in 2017, which should help free cash flow to rise further.

Jubilee field 2017 net production is forecast to be 36,300 bopd, while the Turret Remediation Project is making good progress with costs being offset by insurance payments. The Kenya exploration and appraisal programmes continues to support resource growth, while the Uganda deal provides some upfront cash and deferred payments to cover upstream and pipeline capex to first oil and beyond.

In the last six months, Tullow Oil’s share price has risen 37%. That’s ahead of Oil & Gas sector peers such as Centrica PLC (LON:CNA) (LSE:CNA.L), Premier Oil PLC (LON:PMO) (LSE:PMO.L), BP plc (LON:BP) (LSE:BP.L) and Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L). Shell is up 11%, Premier Oil is 17% firmer, BP is 8% higher and Centrica’s shares have slipped 2%.

In my view, Tullow Oil has investment appeal. It is at the start of a process which should see debts fall and free cash flow rise. This could cause investor sentiment to improve. However, it remains a relatively risky play which could take a number of years to come good. Therefore, I’m cautious on its outlook over the next couple of years, but positive about its investment potential in the long run.

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