Why Barclays is feeling bullish about Tullow Oil

This morning, Tullow Oil announced it made "significant" oil discoveries in Kenya in 2013. But the exploration company also warned that production stutters in Ghana will probably push down its average production for 2014.

Barclays, however, is optimistic about Tullow's future. In a note following the statement, it reiterated its rating of Tullow's stock as overweight, saying:

The investment case for Tullow is based on its exploration portfolio, which we consider to be the most attractive within our sector coverage.

It combines lower-risk yet material opportunities in Kenya and French Guyanan together with high-risk high-impact wells in West Africa, Mozambique and Greenland.

The bank believes that, despite hurdles - Tullow expects a net write-off of $405m for exploration of dud wells last year - the company's efforts last year signal a wide portfolio, partnered with a well-funded balance sheet.

Tullow said this morning:

Following a successful $650m debut bond issue in November 2013, Tullow's balance sheet is well-funded and the Group has unutilised debt capacity of $2.4bn.

Barclays believes that this will be sufficient to bear the ongoing negotiations in Ghana.

The bank's also upped its resources estimate by 150m barrels to 600m barrels, on the back of the company's exploration successes last year.

Tullow had a double strike in 2013, and predicts that the two discoveries in South Lokichar could hold in excess of 1bn barrels of resources.

Over the next 18 months it expects to drill over 40 wells, half of which are located onshore Kenya, part of the South Lokichar basin. The image below shows the plays in the area:

(Barclays)