The oil explorer was the heaviest faller in the FTSE 100 after a boundary dispute escalated .It was never going to be a good week for Tullow Oil shareholders, with the oil explorer almost certain to be relegated from the FTSE 100 at Wednesday’s index review. But news of an escalating maritime boundary dispute that potentially threatens one of Tullow’s key oil projects ensured the week got off to an even worse start than expected.
Shares in the Africa-focused company slumped 30p, or 7.7pc, to 357.3p amid concern that Tullow’s Tweneboa-Enyenra-Ntomme (TEN) development off the coast of Ghana could fall behind schedule. The project is located in disputed waters, and Tullow said on Monday that Ivory Coast had asked the International Tribunal for the Law of the Sea (ITLOS) to order Ghana to halt all drilling in the area.
The announcement sparked fears that TEN would be hit by delays. ITLOS is expected to give a “full verdict” on the dispute in late 2017, although a decision on “preliminary measures” should come by the end of April, Tullow said.
“Development activity on TEN continues on schedule and on budget for first oil in mid-2016,” Barclays analyst James Hosie said. “Clearly the imposition of provisional measures would impact this timeline.”
TEN is a key project for Tullow and a delay would exert extra pressure on the company’s already strained finances. The explorer has been hit by the plunge in oil prices and last month scrapped its dividend in an effort stave off a potential debt covenant breach later this year.
The slide in crude prices has also knocked Tullow’s shares, which have slumped 59pc since mid-June, when Brent began to fall. The tumble puts Tullow in line to drop out of the FTSE 100 at Wednesday’s quarterly index review. Tullow’s likely demotion will have already started to weigh on its shares, traders and analysts said.
Confirmation of its relegation will force index tracking funds to offload Tullow stock and hedge funds, seeking to get in ahead of the selling pressure exerted by the trackers, will have begun to cut their shareholdings.
ullow was the heaviest faller in a FTSE 100 that closed down 6.02 points at 6,940.64, having earlier set a new intraday record of 6,974.26.
Cairn Energy was another explorer that was out of favour on Monday, sliding 8.3p to 195.2p on news that a well in the waters off the western Sahara had been abandoned. Cairn has a 20pc stake in the block where the drilling took place.
The unveiling of the first full budget by Narendra Modi’s business-friendly Indian government on Saturday did not help sentiment towards the explorer because it failed to resolve the company’s long-running tax dispute in the country.
“Those that were expecting Modi to announce an outright abolition of retrospective tax or legislation that applies specifically to Cairn Energy may be disappointed,” said Numis analyst Sanjeev Bahl.
But Afren climbed 15.1pc – a gain of 1.3p to 9.905p – after it said its lenders had deferred a $50m (£32.55m) debt repayment to the end of March, marking the second time the banks had granted the struggling oil company more time to secure its future. Investors are hopeful that a reportedly more shareholder-friendly rescue offer from Afren’s co-founder, Bert Cooper, and the Chinese conglomerate Fosun will trump a debt-for-equity swap proposed by the company’s bondholders.
Elsewhere among the gainers, Smith & Nephew, the artificial hip maker, was lifted 13p to £11.99 after Numis said that persistent bid speculation was distracting from the company’s encouraging strategic progress.
“S&N is steadily refocusing its portfolio to higher growth product areas,” analyst Sally Taylor said. “We expect over 40pc of S&N’s 2015 [estimated] revenues to be generated by its higher growth sports medicine and trauma businesses.”
Coms, the Aim-listed telephony and IT group, rallied 0.2p – 17.4pc – to 1.35p after announcing that its boss, Dave Breith, had resigned following a boardroom rift. The stock plunged last week when Coms revealed it would post a “substantial” annual loss and that Mr Breith, the biggest shareholder, had called a general meeting to oust its chairman and another non-executive director. However, Mr Breith has now withdrawn the meeting request that had so unnerved investors.
By: Ben Martin