Tullow Oil Led EWU despite Being Battered by Oil Prices and Debt

Tullow Oil (TUWLF) led the iShares MSCI United Kingdom ETF (EWU). It recorded the highest return of 2.55% on August 17. Although Tullow Oil grabbed the spotlight on August 17, it’s more complex than it appears.

The company’s recent conference call on earnings presented its standpoint in this volatile environment. It needs to keep itself competitive.

• Tullow Oil has undergone a major cost cutting exercise. It’s focused more on cost.
• It resurrected a strong cash flow from its assets.
• Tullow Oil significantly reduced its staff.
• It made arrangements for additional debt facilities.
• It put a risk management and hedging program in place.

The transcript from the company’s conference call states that “And our financial strategy, going forwards, is to further deleverage the Company and actually deleverage it beyond the natural deleveraging.”

However, Tullow Oil’s stock fell almost 50% YTD (year-to-date). The above graph displays the YTD return. It belongs to the energy sector. As a result, it has the following key concerns.

• Impact of oil prices and unstable energy sector environment is inevitable and uncertain
• Lots of debts and financial leverage
• Substantial investment in West Africa raises its geopolitical risks
• Market speculation—given the state of the company, it could soon serve as a takeover target

The other oil and energy major BP (BP) also yielded -0.67% as of August 17 due to the oil sector woes. Similarly, Royal Dutch Shell Class A (RDS.A), Royal Dutch Shell Class B (RDS.B), Amec Foster Wheeler (AMFW), and Petrofac (POFCY) returned -0.22%, -0.11%, -1.03%, and 0.06%, respectively, on August 17.

Now, let’s also look at the key players in EWU.

Continue to Next Part

Browse this series on Market Realist:

• Part 2 - Utilities and the IT Sector Shine on August 17