The shares have underperformed for around a decade, but I believe they look set for takeoff. Here are my reasons why.

A cheap portfolio diversifier

The stock is down 70% over the last three years. It is easy for me to forget that the shares traded for well over £10 each a decade ago. But I believe the turnaround story is afoot.

In my view, Tullow Oil is deeply undervalued compared to peers. It also has higher earnings growth potential due to some recent cash-generative acquisitions. I am a long-term investor, so these value-oriented features are highly attractive to me.

Can the share price grow from here?

The mid-cap does not pay a dividend. But in an environment with high inflation and a high risk of economic recession, income is not the top of my agenda. Growth is.

I think the near-term picture, as well as the long-term one, look promising for the Tullow Oil share price.

The company has rewarded existing shareholders with a total return of 4.1% in the last 12 months. Of course, these recent returns are much better than the loss of 11% per year over the previous five years. Tullow Oil’s earnings growth forecast also exceeds both its sector and the broader market.

These are all indicators to me of a bargain worth adding to my portfolio.

The rally is coming

As oil prices have hit multi-year highs, oil majors like Shell and BP have seen their share prices rally by more than 50% over the past 12 months.

Meanwhile, Tullow as a smaller oil producer, has lagged, rising by a meagre 15% or so.

Make no mistake here, I am well aware that Tullow is a loss-making company. But I also feel that the market is under-rating its potential. The company has grown net income year on year, from a loss of -£1.22bn to a smaller loss of -£80.70m despite declining revenues. Meanwhile, the company is expected to break even financially a year from now, according to several oil and gas analysts.

I expect this trend of the company operating more profitably to continue.

Meanwhile, I believe the price of oil is likely to be stubbornly and persistently high, beyond 2022 and 2023. Positively, this feeds into the hands of Tullow Oil. Though, of course, rising oil prices are no guarantee.

But in the event oil prices continue rising, the stock could be gold dust for me in what is likely to be a challenging environment for growth over the coming business cycle.

Thus, it will be interesting to see signs of continued operational improvements in Tullow’s latest earnings results due tomorrow. If so, then it could well be a signal for me to buy and hold over the long run.

But the longer story looks pretty bad for Tullow. In fact, it’s down 70% over three years, and that’s just the tip of the iceberg. It has collapsed over the past decade.

So, let’s take a close look at Tullow’s performance and see whether it’s right for my portfolio.

A decade of setbacks

A decade ago, Tullow shares traded for well over 1,000p each. Today, Tullow is trading for around 50p.

The firm focuses on developing hydrocarbon resources in nascent and frontier markets, primarily in Africa. It is also known for employing a more localised business model than some of its competitors. However, a VP once remarked that sandwiches for its Ghana operations were still flown in from Europe!

But generally, and I explored this at length in my doctoral research, Tullow’s more localised business model was deemed to be leaner than other companies that transitionally employ expatriates and use international supply chains in their global operations.

However, the London-based firm has experienced a number of expensive setbacks, including in Uganda. Tullow submitted its field development plans to the Ugandan government in 2013. But the state never responded to the firm’s plans. To make matters worse, Tullow was hit with a massive tax bill when it attempted to farm down its operations to CNOOC and Total.

Outlook

Things are starting to look up again for Tullow. It recently announced an agreement for a merger with cash-rich British independent Capricorn. And this should help Tullow because it can leverage Capricorn’s cash to progress some of its highly-promising development projects, such as its operations in Kenya.

In a July update, Tullow said free cash flow in the first half was neutral, following an arbitration payment and an acquisition. However, looking to the full year, it reiterated free cash flow guidance of $200m, assuming an average oil price of $95 a barrel.

It expects to produce between 59,000 and 65,000 barrels of oil equivalent per day in 2022.

Yet looking at the year ahead, there is some uncertainty around oil prices. Some analysts see them hitting $65 by the end of the year amid a global economic downturn, others see them soaring to $380 if Russia cuts production.

In the long run, I actually see oil remaining higher for longer as we enter a period of scarcity and intense competition for resources. So I’m actually pretty bullish on oil beyond 2022 and 2023. But I contend there might be better opportunities to buy ‘big oil’ later this year.

However, Tullow is a little different to the big oil firms. There are now some doubts whether the Capricorn merger will go ahead amid concern from that firm’s shareholders. I’m actually holding off buying right now because of this and because of increasing vulnerability, caused by global inflation, in the emerging markets in which Tullow operates.

Right now, I don’t think the Tullow share price is poised to take off.

Tullow Oil

Tullow Oil’s (LSE:TLW) share price has fallen 19.68% in the last year, while it’s down 20% in the past month. The shares are currently trading at 44p.

The company – an oil exploration and production firm – recently concluded a deal to buy Capricorn Energy. The new partnership, which started in June, is designed to create a “leading African energy company”. 

Investment bank JP Morgan hailed the deal as a step in the right direction. It further believes that the partnership will be beneficial for both oil production and reserves. The bank placed a price target of 82p on Tullow Oil, which is far higher than the current share price.  

The present economic environment is also good news for the business, because both WTI and Brent Crude oil are still trading around $100 per barrel. This essentially means that Tullow Oil’s produce is worth more than it would have been in 2020, for example.

However, between 2020 and 2021, revenue fell by around $100m. This trend is something I’d like to see reverse when the next results are published.

AO World

Secondly, AO World (LSE:AO) shares have taken a battering over the past year. In that time, they’ve fallen 81.42%, while over the last month they’re down 40%. At the time of writing, the shares are trading at 45.5p.

The company – a retailer of electrical goods – announced last month that it was embarking on a £40m capital raise through the issuance of new shares. This sent alarm bells ringing in the stock market, because investors interpreted this as a sign that the firm was struggling for cash.

The business stated that it was raising cash to bolster liquidity and to be able to take advantage of any future opportunities to grow.

In terms of results, AO World performed relatively well during the pandemic. Between the 2020 and 2021 fiscal years, pre-tax profits grew from £600k to £20.2m. 

However, with more talk of a recession looming, it seems likely that revenue could be hit as customers have less cash in their pockets to spend on electrical goods. This could be bad news for the shares.

Overall, both of these companies have faced challenges recently. It’s still unclear how broader factors, like Tullow Oil’s takeover deal or AO World’s capital raise, will impact the respective businesses. Given the uncertainty, I won’t be adding these stocks to my portfolio, but I’ll keep them on my watchlist for the future.

But today, the independent oil and gas operator made up for some of the losses as it jumped 3% in early morning trading.

Despite doing plenty of research on Tullow for my PhD, I’ve never invested in the company. But maybe I should reconsider. So, let’s see if it’s right for my portfolio.

What’s been moving the Tullow share price?

Tullow once traded for 1,500p a share, today it trades for just 40p. It was a promising hydrocarbons firm that looked to approach the industry with a new, more localised, business model.

However, it experienced several setbacks.

The London-headquartered firm focuses on frontier oil markets like Uganda, Ghana and Kenya. Uganda was one of its most promising assets.

Tullow submitted its field development plans to the Ugandan government in 2013. However, the government never responded, despite the British oil company having a positive reputation among Ugandan civil servants and others in the industry.

To add insult to injury, Tullow was hit with a massive tax bill when it tried to farm down its operations to Total and CNOC.

Events in Uganda were compounded by two oil price crashes.

The company had been making gains this year until the oil price weakened in recent weeks.

Prospects

Tullow said it closed last year with net debt of just over $2.1bn. That was down from the near $2.4bn in debt it held at the end of 2020.

That’s a lot of debt for a company with a market cap of just over £500m.

A recently announced merger with British independent Capricorn might help address this. Capricorn has a significant cash weighting that should assist Tullow in progressing some of its development projects.

JP Morgan suggested that Capricorn’s cash could de-risk Tullow’s operations in Kenya.

In the current high oil price environment, Tullow will want to get all of its assets on-line in order to maximise revenue and hopefully start reducing debt.

However, oil prices are the core determinant of the profitability of oil companies. And right now, nobody really knows where they’re going to go.

This week alone, we’ve had several contrasting forecasts from reputable institutions.

Citi Group suggested oil could fall to $65 a barrel this year and slump to $45 by end-2023. Meanwhile, JP Morgan suggested it could rise as high as $380 if Russia stops exporting to G7 nations.

Personally, I see oil falling on weak economic data and continued Chinese lockdowns as we approach the end of the year.

Is it right for my portfolio?

I would buy Tullow stock now as I think, in the long run, we’re entering an era of scarcity characterised by higher commodity prices. This will be good for oil stocks, particularly Tullow which needs to reduce its debt burden.

However, there could well be better entry points later this year as I predict oil will fall in the near term.

However, things didn’t go to plan. Challenges with host governments and two oil price collapses left the firm in a bad place.

Despite this, JP Morgan recently resumed its coverage of shares of Tullow Oil at “overweight“. So, maybe I should consider this stock for my portfolio?

Why did the share price collapse?

Tullow’s problems started much earlier than the pandemic. The firm — which focuses on frontier assets in nascent hydrocarbon producing economies — submitted its field development plans to the Ugandan government in 2013.

However, the Ugandan government delayed its response. In fact, Uganda still hasn’t achieved ‘first oil’. Observers suggested that President Yoweri Museveni was keen to develop local capabilities first to ensure that Uganda’s oil industry wouldn’t function as an economic enclave.

This hit the Tullow share price. But there was another issue in Uganda. Tullow became embroiled in a tax dispute with the government as it attempted to farm down its operations.

And this was compounded by the 2015-2016 oil price crash, which hit smaller producers more than the majors, which had more cash in reserve. The pandemic had the same impact with spot prices crashing towards $0.

Net debt climb into the billions, which still weighs on the balance sheet.

Is now the time to buy?

Analysts at JP Morgan recently deemed Tullow Oil to be “overweight” following a period of “restriction” after the announcement of the firm’s merger with another British independent, Capricorn.

The bank said that the combination of the two companies would be strategically beneficial. JP Morgan added that the merger would add scale in terms of both production and reserves while strengthening the balance sheet.

Due to Capricorn’s “significant” weighting to cash and Tullow’s share price, the latter would be paying only 56c for each dollar on the former’s balance sheet. Capricorn’s cash could be key to unlocking Tullow’s contingent resource potential.

JP Morgan set its price target at 82p, considerably above the current share price.

I’ve also largely avoided oil and mining stocks this year, anticipating that they would fall on the back of Chinese lockdowns. However, that hasn’t really happened and, looking at the long run, I think we’re entering a period of scarcity during which commodity prices will remain high.

Because of that, I’m inclined to think Tullow will be able to achieve the revenue it needs to start paying off it debt and continue growing its portfolio.

There’s also the matter of Tullow’s business model. The group looks to employ and operate more locally than other operators. It sponsors and trains hundreds of people in the countries in which it operates. And this makes Tullow an attractive operator for host governments as well as being leaner. In the long run, this should serve it well.

Risks

The biggest risks revolve around debt and another oil price collapse. The firm may struggle to survive if we entered another period of reduced oil prices.

Despite this, I’d buy Tullow at the current price. The merger and higher oil prices may give this firm a second chance.

Here are two that I’m thinking of buying right now.

A low-risk play

The first stock I like is Just Group (LSE:JUST). The FTSE 250 company has seen the share price fall by 24% over the last year. This puts the shares down at 82p, making it a penny stock.

Just Group is a UK-based financial services company focusing on the retirement market for individuals and corporates. It says it has an edge due to the quality of underwriting and the experienced medical team it has in-house.

The business model is similar to other financial services firms, which is the main reason I like the penny stock. It has strong capital generation, which filters down to high solvency and a low risk of running out of cash anytime soon. Just Group notes a forecasted 15% growth in operating profits per annum due to this capital generation.

Of course, the company isn’t perfect and the share price has taken a hit in the past year. One reason for this was the exposure it had to lifetime mortgages. It cut some of this last year and sold it to another company, taking a loss in the process. Another risk the business cited in the full-year results was the constant regulatory framework changes.

Overall, I think I’ll buy this penny stock as an alternative to some of the large FTSE 100 pension and asset managers.

A higher-risk penny stock

The second firm I think has growth potential is Tullow Oil (LSE:TLW). I’ve had mixed emotions over the years about the oil exploration company. In some respects, it has traded like a true penny stock with high volatility and erratic moves.

However, that’s the nature of the sector, given that it all comes down to whether sustainable oil projects can be found and commercialised. The share price is up 10% over the past year, but still trades well below 100p, closing Friday at 55.9p.

I think the outlook appears brighter now than it has for a while. It has 40 exploration and production licenses in 11 countries. In a recent update, it reiterated that it should be able to meet production guidance of 59,000-65,000 barrels a day.

This is in contrast to recent years, where habitual downgrades of expectations caused the share price to spiral ever lower.

Clearly, such penny stocks are still risky investments for me to consider. Yet it seems like this particular business is getting itself in order, with large potential in the Jubilee and TEN fields. However, if speculation on new projects fails to deliver, the share price could slump.

Royston Wild: BAE Systems 

The BAE Systems (LSE: BA) share price lifted off in February as tragic events in Ukraine unfolded, and it’s stayed strong since then. The war in Eastern Europe illustrates the tense geopolitical backdrop that I think will support sustained and strong demand for BAE Systems’ defence products. 

In fact, BAE Systems has grown earnings in four of the past five years as global arms spending has risen. The only reversal came in 2020 when Covid-19 disruptions hit the bottom line. City analysts expect profits to keep heading northwards this year, and next too, as the West bumps up arms spending in light of recent events.

I think BAE Systems could be a particularly strong performer in May too as rising fears over rampant inflation boost demand for safe-haven shares like defence companies. 

Royston Wild does not own shares in BAE Systems.

Zaven Boyrazian: Alpha FX Group

Alpha FX (LSE:AFX) is a financial services group specialising in currency risk management and alternative banking solutions. The firm helps businesses mitigate foreign exchange risk while simultaneously enabling almost instant enterprise-scale international transactions – something not possible with archaic methods like wire transfers.

Corporate banks offer similar solutions and are a significant source of competition. However, these are often prohibitively expensive. By charging on a per-transaction basis, Alpha FX enables its clients to overcome this barrier to entry.

With an impressive track record of double-digit growth and its 2022 performance continuing to impress, I think it’s time to add more shares to my portfolio today.

Zaven Boyrazian owns shares in Alpha FX

Edward Sheldon: Smith & Nephew

My top British stock for May is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.

There are a couple of reasons I like the look of Smith & Nephew right now. One is that there’s a huge joint replacement backlog globally at the moment due to Covid-19. So, the company appears to be well positioned for growth in the years ahead.

Another is that the healthcare sector tends to be quite defensive in nature. So, the stock could hold up relatively well if we see a recession.

It’s worth pointing out that Smith & Nephew shares are not cheap. So, this adds a bit of risk. All things considered though, I see a lot of potential here.

Edward Sheldon owns shares in Smith & Nephew.

Stephen Wright: London Stock Exchange Group

I think that my top stock for May is one of the best companies in the UK. It combines a core business that has virtually no competition with other operations that have high margins, low costs, and generate huge returns.

The stock is London Stock Exchange Group (LSE:LSEG). The company operates the exchanges on which financial market transactions take place. These have high barriers to entry. But the company also has various other operations, including data, fixed income trading, and clearing services.

Stephen Wright does not own London Stock Exchange Group.

Michelle Freeman: Wizz Air

It’s no surprise to anyone that airline shares have had a rough time over the last two years. But with Wizz Air (LSE: WIZZ) down over 30% since the start of the year, I think its shares look potentially oversold compared to others. 

Yes, Wizz has more exposure to those Eastern European travel destinations that are impacted from the on-going war. But it has been diversifying its network and increasing capacity recently, including picking up more Gatwick slots from Norwegian.  

With the WTTC reporting triple-digit growth compared to last year, I wouldn’t be at all surprised to see the share price benefit accordingly. 

Michelle Freeman does not own shares in Wizz Air.

Andrew Mackie: Anglo American

My top stock for May is Anglo American (LSE: AAL). This may seem like a strange choice, given the 20% share price fall in the three days following a disappointing Q1 production report.

However, I would look beyond the headlines. At the moment, a lot of miners are suffering with high input costs, particularly diesel, Covid-related absences and production issues. However, all this is likely to do is push up prices even further.

The business remains a cash-generating machine, with a dividend policy of returning 40% of underlying earnings to shareholders.

For me, the commodities cycle is still very much in its early innings. With such a diversified portfolio, the sell-off has presented a good entry point for long-term investors.

Andrew Mackie does not own shares in Anglo American.

Andrew Woods: Tullow Oil

Tullow Oil (LSE: TLW) is an oil and gas exploration and production firm. It operates globally, but it has larger operations in Ghana and Kenya in Africa, and Guyana in South America.

The pandemic hit the business hard, resulting in a $1.2bn pre-tax loss in 2020. It recovered, however, to post a $200m pre-tax profit the following year.

In March, it increased its stake in two oil fields in Ghana, potentially increasing production by 4,000 barrels of oil per day. With oil prices at high levels, I think this firm could be a top stock for me in May.  

Andrew Woods has no position in Tullow Oil.

Paul Summers: XP Power

Having once made a big profit on the stock, I’m starting to think about buying XP Power (LSE: XPP) again. The share price of the critical power solutions provider has tumbled in the last few months due to a resurgence of Covid-19 in Asia, higher costs, and limited component supply.

Despite these headwinds, business is ticking along nicely. XP had a record order book of roughly £260m moving into Q2.

The valuation of 17 times forecast earnings looks pretty reasonable to me. There’s also a well-covered dividend to keep investors happy while the dark clouds pass. 

Paul Summers has no position in XP Power

John Choong: Dunelm

Dunelm (LSE: DNLM) was predicted to falter after Covid restrictions were lifted. But its most recent earnings report showed a 25% increase in its profits, with total sales up 10.6% year over year. Additionally, Dunelm has managed to maintain healthy margins of 10.8% whilst boasting a stellar balance sheet with zero debt.

Although its stock has taken a plummet due to disappointing retail sales figures, the fine print proves that the British retailer remains immune for the time-being, as household goods stores saw a 2.6% increase in sales. This is backed up by Dunelm’s own numbers, with an 8.5% increase in active customer growth.

John Choong has no position in Dunelm.

Roland Head: Redrow

I am picking FTSE 250 housebuilder Redrow (LSE: RDW) as my top stock for May. I think that shares in this founder-backed group could offer impressive value.

The risk of a UK economic slowdown is the main concern here. That could hit sales. But recent trading updates have not suggested any slowdown in demand for new housing.

In Redrow’s latest results, the company increased its sales and profit guidance for 2022 and said that profit margins were rising despite higher costs.

With the stock trading on six times earnings and offering a 6% dividend yield, I think Redrow offers excellent value.

Roland Head does not own shares in Redrow.

G A Chester: Integrafin Holdings 

Integrafin Holdings (LSE: IHP) owns Transact, one of the largest independent platforms serving UK financial advisors and their clients. It may not be as well-known as direct-to-consumer operator Hargreaves Lansdown, but it has a strong record of growth. 

Revenue has increased at a compound annual rate of 12% over the last four years and earnings have advanced at a rate of 14%. Negative market movements in asset prices are a risk, and wage inflation is also currently a friction. 

Nevertheless, after recent share-price weakness, and with a tailwind of structural growth in the UK wealth-management market, Integrafin looks a quality business on sale cheap. 

G A Chester has no position in Integrafin Holdings. 

Alan Oscroft: Kingfisher

At around the 250p mark, DIY specialist Kingfisher (LSE: KGF) looks cheap to me. The owner of B&Q and Screwfix staged a strong pandemic comeback. But that’s reversed in 2022, for a 30% fall over the past 12 months. The shares are now on a trailing P/E of only around seven, with dividend yields above 3.5%.

My main concern is that free cash flow for 2021-22 fell sharply. With net debt of £1.6bn, that could bite. But the company is buying up its own shares right now. I’d do the same.

Alan Oscroft has no position in Kingfisher.

A FTSE 100 penny stock

The first company is Rolls-Royce (LSE:RR). It currently has a share price of 97p, and is down 5% over the past year. This doesn’t quite do justice to the struggles of the business since Covid-19. The 67% fall over the past three years tells the story better in my opinion.

The main reason why Rolls-Royce is a penny stock is due to the Civil Aerospace division. The need for servicing and providing new or existing engines has shrunk. This is due to the lack of flying hours from major airline operators.

However, my outlook for the business is much more positive than it was a year ago. In fact, when I look at the difference between the share price and other valuation tools, I don’t think this will remain a penny stock for much longer this year.

I wrote about the company in detail last week, with my calculations leading me to think that the long-term upside could be 40-50%. If the Civil Aerospace division makes back its losses and posts a performance similar to 2019, it would help to boost group operating profit by around 42%.

Further, if I compare the enterprise value (an alternative way of valuing a business) of £13.79bn to the market capitalisation of around £8.5bn, it does indicate to me that the share price is quite low.

The clear risk here is that permanent damage has been done to the company, and I’ll have to accept that pre-pandemic output is simply not achievable going forward.

A commodity firm with upside

The second of the penny stocks I like is Tullow Oil (LSE:TLW). The share price might be up by 17% over one year, but again, the true picture can be seen when I look at the three-year performance. Over this timeframe, the shares are down 77%.

The struggles for Tullow over the past few years have been numerous. During late 2019 and early 2020, it revised down oil output expectations from Ghana. The fall in the oil price in 2021 to below $0 was something that hurt all businesses in the sector. Tullow also saw net debt climb into the billions which still weighs on the balance sheet.

Looking forward though, I think the penny stock has put the worst behind it. The share price has been rallying in recent months thanks to the surging oil price. With prices still holding above $100, Tullow will be able to benefit from this in Q2.

Another factor to support share price growth this year was seen last month. The business increased the production guidance for two oil fields (Jubilee and TEN), something that should give investors more confidence for the coming year.

Buying the dip in the Tullow Oil share price

While oil companies generally performed well during the recent sell-off, the Tullow Oil (LSE:TLW) share price is down 14.5% in the past two weeks. It is currently trading at 53.3p, down 4.8% in the past year.

As an oil exploration and production business, it primarily operates in South America and parts of Africa. In the results for the 2021 calendar year, revenue slipped from $1.4bn to $1.27bn, year on year. Despite this, gross profit rose from $403m to $634m. 

Furthermore, the loss after tax narrowed significantly from $1.2bn in 2020 to just $81m. Net debt also fell from $2.37bn to $2.1bn and cash flow guidance for 2022 remains at around $750m.

Combined with the surging oil price, I think these results are very encouraging. It should also be noted, however, that past performance is not necessarily indicative of future performance.

While there is always the risk of future Covid-19 variants halting production, the recent deal to increase interests in the Jubilee and TEN fields in Ghana is exciting news. The suggests the firm is now focused on controlled expansion.

What about Currys?

The second business I’m buying during the dip is Currys (LSE:CURY), a technology products and services retailer. The shares are currently trading at 89.45p, down 8% in the past month and 36% in the last year.

In an update for the six months to 31 October 2021, pre-tax profit increased from £40m to £48m. Despite this, revenue for the period fell by 2%, year on year. Investment firm AJ Bell suggests that results could drop off after increased trading during the pandemic. In addition, any future lockdowns could negatively impact the ability to open Currys shops.

However, the company announced a share buyback scheme of £75m. This may be an indication that the business is in a healthy position.

What’s more, sales for the six months to 31 October 2021 were up 15%, compared with the same period in 2019, but down 1% year on year. As my Motley Fool colleague Rupert Hargreaves has mentioned, however, supply chain issues may become a problem in the future.

Overall, I think both of these firms are in a strong position going forward and they seem good options for investment during the coming month. I will be buying shares in both in the coming weeks.   

A heavily-indebted business

Tullow Oil is a company that has been in trouble long before the pandemic struck. In 2019, the Africa-focused business reduced its production guidance due to drilling problems. When the pandemic struck, it was forced to take significant impairments and exploration write-offs totalling $1.2bn. At that time, its net debt stood at $3bn, resulting in a gearing ratio of three times.

This matters hugely, as in order to secure a debt refinancing package with its creditors, in May 2021 it was required to hedge the price of oil in order to stabilise income. In 2022 and 2023, 75% of its sales volumes have a ceiling price of $78 and a floor price of $51. In 2024, this will be reduced to 50% of sales.

This turned out to be terrible timing for the business, as oil prices have surged over the past six months and are now well in excess of $100 a barrel. Given the hugely cyclical nature of the oil industry, there is no guarantee that prices will remain elevated beyond 2024.

Longer-term prospects

When a share price falls 95% over an extended 10-year period, that raises alarm bells for me. It could be because the wider industry is in decline (a factor clearly not present here). It could be attributed to the fact that the company possesses a dwindling asset base. Or it could simply be a poorly run business. However, the company was able to survive the worst crisis to hit the industry in 30 years.

Tullow’s key assets in Ghana, the Jubilee and TEN oil fields, have significant oil reserves. The Jubilee field in particular saw production rise 29% throughout 2021 as new wells were bought onstream. To date, only about half of its expected reserves have been produced. There is also significant development work just outside Jubilee. There, the company’s estimated ultimate recovery is 170m barrels of oil, of which only 10% has been produced to date.

With the successful refinancing of its debt complete, the company’s immediate cash flow problems look behind it. It intends to use the raised cash for working capital purposes. This includes a capital expenditure allowance of $350m to maximise the value from the Group’s producing assets, as well as exploration activities.

Is Tullow Oil a buy?

Although it has a number of high-growth, short payback projects in the pipeline, it is very difficult for me to look beyond the immediate headlines. Revenue, total production, and realised oil prices were all down on 2020. And this is all set against a wider commodities industry that is enjoying something of a renaissance.

Net debt only fell by 12.5% and stands at $2.1bn. That is two times the market cap of the firm. With the oil price hedge in place for another two years, I just can’t see revenues moving upward significantly from here. Therefore, I won’t be buying.