Two pieces of potentially bad news have sent Tullow Oil's shares sliding, making it the biggest faller in the leading index.
The exploration group is down 31p to £13.96 after Total said it was renegotiating part of a deal to buy a stake in Tullow's Ugandan oil fields. The French company said the move was related to delays in gaining approval for the proposals. Tullow is waiting for the government to give the go-ahead so it can sell stakes in the Ugandan blocks to Total and China's CNOOC and then proceed with a $10bn development of the area.
Before the Total comments, analyst Charlie Sharp at Matrix had said:
All eyes in the short term are on the Uganda election scheduled for 18 February. The expectation is for [President] Museveni to be re-elected and for that to be the trigger for final sign-off by Uganda of all remaining obstacles related to ongoing work in the Lake Albert licences.
We value Tullow's Uganda assets at 15% of our 'core' and 'total' value for the company. The absolute worst-case scenario remains that all those assets are lost, in which case, we think the market would respond with an even more significant downgrade than the 15% valuation. Another possibility is that a modification of the terms is imposed on Tullow (and its anticipated partners, CNOOC and Total) resulting in an erosion of value.
Earlier Tullow said that the Gharabi-1 well in Mauritania had been unsuccessful and had been plugged and abandoned, but maintained this would have no impact on its future plans for the area. House broker RBS said this knocked around 5p a share off its model but added:
This shouldn't have a major impact on sentiment as the key Sidewinder prospect on the licence has yet to be drilled.
Heading in the other direction is Resolution, up 12.7p to 276.7p after a positive note on the insurer from Redburn Partners, while GKN has added 9.8p to 217.5p following a buy recommendation from Investec.
