Tullow Oil - The Black-Eyed Mona Lisa

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The Tullow Oil share price (LSE:TLW) has taken a beating over the last 12 months, having dropped from a high of 1,125 in July 2013 to below 750 as of mid-April 2014. The share price volatility is typical of mining and energy exploration stocks. In just the past 30 days Tullow shares have been in a down-again, up-again, down-again pattern from below 845 to above 875 and back again, following the typical exploring pattern of good news followed by bad. The past two days have been classic.

Yesterday – 02 July 2014

Tullow released a Trading Statement & Operational Update in advance of publication of its results for the six-months ending 30 June. Those results are expected on 30 July.

Investors had a hard time seeing the smile on TLW’s face because their attention was drawn to the obvious black eye it had developed from taking a $415 million beating from unproductive projects in Mauritania, Ethiopia and Norway, along with several licensing issues. That news drove the share price down from 857.00 to 849.50 during the trading day as trading volume increased exponentially during the afternoon.

The “black-eyed smile paradox” may have caused some investors to discount the honesty of the smile. Nonetheless, the smile is still there. “Tullow’s 2014 half-yearly financial results are expected to deliver strong revenue and gross profit in line with expectations of approximately $1.3 billion and $650 million, respectively.”

The company further noted that its “balance sheet is extremely well-funded and the Group has unutilized debt capacity at the end of June 2014 of approximately $2.3 billion.” ¬†In what now appears as a bit of foreshadowing, the report also noted that, “In Norway, results from the Hanssen well are expected shortly.”

Today – 03 July 2014

At 7:30 am GMT Tullow formally announced that the Hanssen well in the Barents Sea off the coast of Norway has encountered “20 to 25 meters of oil-bearing sandstone with good reservoir properties.” Preliminary volume is estimated at up to 50 million boepd. ¬†Exploration Director Angus McCoss explained that, “The Hanssen discovery gives us significant insight into the potential of the Wisting cluster and further confidence that we are on track towards proving up a major new commercial oil resource.”

Tullow is a 20% partner in the Hanssen project, which is part of the larger Wisting Central project.

Although Tullow’s share price opened higher at 854.90 this morning and rose to 863.00 by 11:30 GMT, the stock closed at 847.00, down another 0.29% from yesterday on a comparatively low volume of trading. This, despite CEO Aidan Heavey’s summation that, “With potential basin-opening wells across the portfolio coming up in the second half of the year and strong revenue and cash flow, Tullow is in a strong position for the remainder of this year and into 2015.”

It’s kind of like imagining the Mona Lisa with a black eye. We would tend to focus on the black eye and miss the smile completely.

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