Debt is in focus at Tullow Oil following the failed Suriname project

Courtney Goldsmith
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Tullow Oil's trading update this week should let analysts in on how the company is faring in terms of its huge debt pile (Source: Getty)

With a huge debt pile looming and a significant well failure fresh on analysts' minds, the market will be watching for Tullow Oil's latest production levels on Wednesday when the company provides an update on trading.

The Africa-focused oil producer's share price has been on a downward decline since the oil price crash, having fallen from around 850p in 2014 to 191p yesterday. In June, when oil prices were hovering around $50 a barrel, Tullow booked a $600m (£459m) impairment charge due to lower oil price forecasts.

However, with crude oil back above $60 per barrel at two-year highs, analysts will be looking out for news on Tullow's production levels as well as free cash flow, which will point them towards when the company will be able to pay down its debt.

Free cash flow was around $200m at the half year, while Tullow's net debt stood at $3.8bn at the end of June following a $750m rights issue earlier in the year. Citi analysts expect net debt of $3.7bn at the end of the year and said Tullow should generate around $300m to $400m of free cash flow at $55 per barrel oil.

Tullow could also count the cost of a project off the coast of Suriname, which it abandoned in late October after finding no commercial oil. Analysts at at Deutsche Bank had expected the Araku-1 well to be an "important catalyst" for the company.

Capital expenditure plans will also be in focus following an international ruling to allow Tullow to resume drilling on a $5bn project off Ghana. Drilling is set to restart by early January, and Michael Alsford, a Citi analyst, expects initial wells to be focused on the group's Ten asset to increase production to 80,000 barrels per day (bpd) from the 50,000 bpd currently produced.

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