The Tullow Oil share price collapsed to the lowest level since December 2021 as the price of crude oil declined sharply. The TLW stock crashed to a low of 41.86p, which is about 35% below the highest level this year. The company has underperformed other oil majors like Occidental, Shell, Marathon, and BP.
TLW concerns remain
Tullow Oil is a relatively small company in the energy industry. The company explores and produces more than 55k barrels of oil every day. At the current prices, it means that the company makes over $5.5 million on a daily basis.
Tullow focuses on less developed oil markets in Africa and South America. Some of its operations are in Kenya, Gabon, Cote d’Ivoire, Argentina, and Mauritania among others. To operate in these countries, the company inches concession deals with the respective countries.
The Tullow Oil share price is crashing as concerns about the oil industry remain. For example, the price of crude oil has crashed hard in the past few hours. Brent moved from almost $120 to the current $110. Similarly, Western Texas Intermediate (WTI) declined below $100 for the first time since April of this year.
Some analysts believe that oil prices will continue sliding as recession risks rise and as Biden prepares to meet with Crown Prince Salman of Saudi Arabia. In a report, analysts at Citigroup warned that oil could drop to about $65 in the coming months if the recession estimates are valid.
Tullow merger with Capricorn concerns
Mergers and acquisitions are usually highly risky. Indeed, reports show that most M&A deals fail to perform as expected. Some of the most recent failed M&A deals are Teladoc’s buyout of Livongo Health and Block’s purchase of AfterPay. All these deals were made when the companies were at their peak.
There are concerns about the recently announced merger between Tullow Oil and Capricorn Energy. The two companies have not announced their new name. Some have suggested names like Tullicorn and even Caprillow.
After the deal, Capricorn shareholders will own 47% of the firm while Tullow’s will own the rest. The combined firm will have a balance sheet of over $1.8 billion and significant cost synergies. The chart below shows the reserves of the two firms.
The performance of the Tullow Oil share price is a reflection that analysts and investors are worried about the outcome. They seem to believe that the two firms are better as separate companies. One of the investors concerned about the deal is Legal and General Investment Managers.
Tullow Oil share price forecast
Turning to the daily chart, we see that the TLW share price found a strong resistance at 62p. It struggled moving below that level several times this year. Now, it has managed to move below the chin of this top at 45.6p. Worse, the 100-day and 50-day moving averages have made a bearish crossover pattern while the Relative Strength Index (RSI) has crashed to the oversold level.
By measuring the distance between the top and the chin, we can estimate that the Tullow stock price will likely drop to about 33.96p.