Yahoo Finance Tullow Oil to tighten its belt as oil market woes wipe out $600m
Tullow Oil has promised to tighten its belt after booking a $600m (£468m) impairment charge due to the slump in oil prices.
The Africa-focused oil explorer said it continued to face “tough market conditions” after turning to shareholders to raise $750m through a rights issue earlier this year to help manage its debt burden.
The ongoing weakness in the oil market means the group will report a $600m hit in its mid-year report through a non-cash impairment charge on its property and equipment assets.
Tullow has shaved $100m from its forecast spending for the year to $400m, down from $900m last year. This has helped to shrink its net debt by $950m since the end of 2016 to $3.8bn by mid-year.
“Although non-cash, today’s $0.6bn impairment charge is a reminder of the pressure the sector is under,” said Al Stanton from RBC Capital. He added that the company’s market value was likely to remain tied to the volatility of the oil market.
Oil slipped to a 10-month low of $44.50 a barrel last week, while Tullow’s share price has more than halved since the start of the year to around 152p a share.
Paul McDade, in his first trading update as the group’s new boss, said “financial discipline and efficient capital allocation” would be his focus as chief executive.
He stepped into the role after a 12-year tenure as chief operating officer in April, replacing Aidan Heavey, who becomes chairman, with the ambition of returning the company to growth “even at low oil prices”.
Tullow racked up its debt pile by investing heavily in an oil project off Ghana while oil prices slumped, but the group is banking on revenues from its low-cost projects to pay that debt down.
“Since I became CEO in April, I have reviewed our medium-term plans and remain satisfied that we are making the right investment decisions with regard to our producing, development and exploration portfolio,” Mr McDade said.
Tullow’s huge TEN field near Ghana is now online, and could eventually produce 80,000 barrels of a oil a day or more, a huge boost from Tullow’s 48,000 barrel rate in the first half of this year.
Its full-year production average for 2017 remains unchanged at between 83,500 to 91,000 barrels of oil a day. Around a third of this will come from the TEN field and the Jubilee field, which it also operates off the West Africa coast. The group's West African and European fields make up the difference.
