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Abandoned at the altar, Tullow Oil faces headwinds

By:
on Jan 26, 2023
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  • Tullow Oil stock price has plunged by over 40% from its 2022 high.
  • The company is facing significant headwinds in Kenya and Ghana.
  • Chances of getting a strategic partner in Kenya are fading.

Tullow Oil (LON: TLW) share price has underperformed the broader market a few months after it was abandoned at the altar by Capricorn. The stock was trading at 37.6p on Thursday, about 41% from its highest level in 2022. In contrast, other oil and gas companies like Shell and BP have done modestly well in the past few months.

Multiple headwinds

One of the biggest crude oil news in 2022 was the proposal to merge Tullow Oil and Capricorn Energy to create a giant company focused on the African continent. The deal fell apart after Capricorn left Tullow at the altar for a new Israeli suitor. 

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Tullow has severely underperformed the market since then. Its stock is now hovering near its lowest point since 2020 having crashed by over 41% from its highest point in 2022. This performance has happened even as the price of oil and gas remains substantially higher than its historical low.

Analysts cite two key headwinds that the company is facing. First, it is struggling in its Kenyan business, which has been idle for years. The company has in the past said that the project will only go on with a strategic investor. But that investor has not been found. 

And with risks of oil prices falling, there is a likelihood that such an investor will not be found. The company said the following about this deal:

“Tullow continues to focus on the process to secure a strategic partner for the development project in Kenya. In parallel, Tullow and its JV Partners are working with the Energy and Petroleum Regulatory Commission Authority (EPRA) and the Ministry of Energy and Petroleum to finalise the FDP.”

Tullow’s Kenya project is highly in doubt. For one, the project is in Turkana, which is about 850km from the port of Mombasa. Kenya does not have an oil refinery and there is no pipeline in place, meaning, it will rely on trucks. 

Taxes in Ghana

Tullow Oil share price is also reacting to proposed taxes in Ghana, where it is expected to pay at least $300 million in taxes up from last year’s $230 million. These taxes will likely eat into its relatively thin margins even as it plans to up its investment by about $400 million.

Turning to the daily chart, we see that Tullow is also facing technical headwinds. The chart shows that the stock has been in a downward trend that has seen it form a descending channel shown in red. Most recently, it has formed a bearish flag pattern that is shown in yellow. It also remains below all moving averages. 

Therefore, there is a likelihood that the shares will likely have a bearish breakout, and test the next key support level to watch will be at 30p. A move above the key resistance at 40p will invalidate the bearish view.

Tullow Oil share price

TLW chart by TradingView