Tullow is on course to meet full year production guidance of 87-91,000 barrels of oil per day (bopd). The group also expects to generate free cash flow of $700m (benefitting from the $200m sale of Ugandan assets). 

Hargreaves Lansdown View

It was touch and go for a while in early 2016, but Tullow is now firmly back on the right track.

Net debt's still a bit higher than we'd like, meaning the company's uncomfortably exposed to a reversal in oil prices (which have been looking rocky recently). But the debt pile is falling rapidly and with the huge Ghanaian field producing tens of thousands of barrels of oil a day, there's plenty of cash flow to service it.

The twin tailwinds of increasing production and a rising oil price won't blow this strongly forever though.

The need to replace existing reserves is the monkey on the back of all oil groups. Tullow probably spent less than it would like over the last few years as it fought to keep its head above water, so we're not surprised to see the group increasing investment in new projects.

Fortunately the company's got an excellent track record with the drill bit. Progress in the East African portfolio looks promising, with Ugandan and Kenyan assets in the early stages of development. The group has also added acreage in Côte d'Ivoire and Peru, with millions invested in exploration work around the world. These early stage assets are speculative but have the potential to generate significant upside.

Nonetheless Ghana will remain the driving force for years to come, with further development of those fields expected to increase output significantly next year.

Tullow deserves credit for its exploration success, as well as its development achievements. A recovering oil price has dramatically increased the value of past successes, and its expertise are a catalyst for future performance.

But the group's future remains at the mercy of the oil price, and we think a need to step up investment and deleverage at the same time will restrict returns to shareholders for some time yet.