Tullow Oil earnings suggest tough times ahead

When is Tullow Oil’s earnings date?

Tullow Oil is expected to report first-half (H1) earnings on 9 September.

Tullow Oil earnings – what does the City expect?

Revenue is expected to decline by 18.6% for the year, to $710 million, while the firm is forecast to see a pre-tax loss of $1.5 billion, from a $268 million profit a year earlier.

Smaller oil firms like Tullow Oil have not had an easy year thanks to the oil price crash. At one point the share price was in single digits, as investors fled the company on fears that oil prices would remain depressed for the foreseeable future. Thankfully oil prices have recovered to an extent, but are nowhere near the levels of a year ago .

Worse than that, the longer-term shift away from fossil fuels will only intensify. Peak oil demand seems to have got a lot closer, and may even be behind us. In such an environment, where oil prices remain low, exploration will become a much tougher business. Without the financial resources of BP, Shell and others, mid-cap (or formerly mid-cap) oil firms like Tullow will struggle. Much of the bad news was included in the July trading update, with writedowns of $1.4 billion - $1.7 billion expected. But as the focus shifts towards the economic recovery, Tullow Oil may struggle to spin a positive story. Demand is likely to remain under pressure, limiting the case for revenue growth.

How to trade Tullow’s earnings

Daily volatility in Tullow Oil has steadily declined since March, with the 140-day average true range (ATR) declining to just 1.5 from a high of 4.5 in late April. Of the current analyst recommendations, four are ‘buys’, with five ‘sells’ and nine ‘holds’.

Tullow Oil share price – technical analysis

Bullish momentum has ebbed away since June, when the price peaked at 41p. Like UK markets generally, the shares have struggled to maintain any upward movement, with a steady decline being the order of the day since mid-June. Targets to the downside lie at 15.2p, 10.9p and then back to the March low at 7.2p. A more bullish view would first need to clear 25p and trendline resistance from the June highs.

Bleak outlook for Tullow

The outlook for Tullow and its peers is a world away even from last year. Weaker demand and lower oil prices will hurt their exploration businesses, and while a small rebound will probably go a long way to restoring their profit levels, the overall outlook from here is still tough.