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Tullow Oil upgraded as RBC sees development and exploration upside

RBC now rates Tullow as ‘outperform’, up from ‘sector perform’, and it has raised its price target to 300p from 275p
oil and gas operations
RBC expects Tullow to generate around US$900mln of post-tax cash flow this year

Tullow Oil PLC (LON:TLW) is set to ‘outperform’ despite softer oil prices, that’s according to RBC Capital Markets, which today upgraded its view of the oiler.

Assets are seen as the value driver, as RBC is also seeing lower forecasts for crude oil (the bank assumes a US$64 per barrel price).

READ: Goldman Sachs fancies BP and Shell in its Big Oil top picks

“Although management has a tight rein on the company's finances, Tullow's portfolio offers the potential in 2019 for development- and exploration-led upside,” RBC analyst Al Stanton said in a note.

The analyst added: “We expect Tullow to generate $0.9bn of post-tax cash flow in 2019; management has reined in spending and, as a result, we expect the company to generate ~$0.4bn of free cash flow.

“Indeed, we estimate that Tullow’s 2019E spending of $0.5m is covered down below $55/bbl.

“Moreover, management has rescheduled its debt-repayment obligations and, as a result, it has few near-term commitments.”

RBC now rates Tullow as ‘outperform’, up from ‘sector perform’, and it has raised its price target to 300p from 275p.


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