The smart money is following Dobell into Tullow Oil

I love it when a plan comes together. M&G Recovery fund manager Thomas Dobell has always maintained that Anglo-Irish oil-exploration group Tullow Oil deserves its place as his mammoth fund’s biggest bet.

But so far this year its share price has been dragged down by generally poor sentiment and a spot of local difficulty in Africa.

Now though, the two five-star analysts with the best record of calling this one right are telling investors to follow Dobell and buy.

So what has been going wrong?

Like many of its rivals, Tullow was hurt by negative sentiment towards oil firms generally following BP’s Gulf of Mexico disaster. The catastrophe brought the risks of drilling in deep water to the front of investors’ minds. 

But for Tullow this generally tough environment has been made worse by problems within its African business. There has been disappointment at the speed at which the company has got production going in its huge Jubilee field off the coast of Ghana.  

Combine that with worries over delays in its deal to buy Heritage Oil’s assets in Uganda and the two factors created a perfect storm to drag on its performance compared to other oil companies.

Why is that changing?

RBS’s Phil Corbett, the top–rated analyst on Tullow, lists the company as one of his core buys. He believes the problems in Ghana in particular have been more about poor communication with investors than poor execution of its business. He argues there was a ‘misunderstanding’ between Tullow’s management and analysts as to when production from the Jubilee field would begin. But now he says a sell–side analyst trip to Ghana seems to have put that confusion to rest.

However, the hold up in the farm-out of Ugandan fields has probably been the single biggest factor in its underwhelming share price in the first half of 2010.

Presciently, Corbett said a month ago that once the Uganda deal had gone through, investors would re-focus on the return of exploration drilling and the expectation of production from a significant number of wells being drilled over the next nine months.