Tullow Oil Announces $1.5bn Writedown As It Cuts Outlook For Oil Prices

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The Maersk Invincible jack-up rig is seen from the drill tower, in the middle of the North Sea on October 9, 2019. (Photo by Niels Christian Vilmann / Ritzau Scanpix / AFP) / Denmark OUT (Photo by NIELS CHRISTIAN VILMANN/Ritzau Scanpix/AFP via Getty Images)

Tullow Oil has announced a $1.5bn (£1.15bn) writedown on its outlook after lowering its long-term oil price outlook.

The energy firm slashed its prediction for oil prices by $10 to $65 a barrel, with underwhelming well exploration and a reduction in Ghanaian reserves also contributing to the write-down.

“Tullow expects to report pretax impairments and exploration write-offs of circa $1.5bn (c. $1.3bn post tax),” the company said in a statement posted on its website.

“Write-offs include Jethro, Joe and Carapa well costs in Guyana as a result of drilling results and Kenya Block 12A, Mauritania C3, PEL37 Namibia and Jamaica licence costs due to the levels of planned future activity or licence exits.”

Tullow Oil’s share price slipped 1.6 per cent in early trading to 58.2p.

In a bid to guard itself from oil price fluctuations Tullow Oil has hedged 45,000 barrels per day of its 2020 output with an average floor price of $57.28. For next year, it has hedged 22,000 barrels per day at $52.80 each.

It expects to generate cash flow of at least $150m from 75,000 barrels per day at $60.

But it was forced to suspend an early oil pilot scheme in Kenya due to “severe damage” to roads caused by bad weather in the last quarter of 2019.

“Trucking remains on hold until all roads are repaired to a safe standard,” Tullow warned.

Tullow is still searching for a new chief executive after its share price plunged 70 per cent in December following the resignation of Pat McDade on the back of the business’ poor performance.

His resignation, alongside that of exploration director Angus McCoss, wiped £1.2bn off the firm’s market value.

Problems with its Ghana drilling operations forced Tullow to cut its production guidance for 2019 to 87,000 barrels per day from 89,000.

Tuloow said it ended 2019 with an average production of 86,700 barrels per day and free cash flow of $350m.

“Since our December announcement, Tullow’s senior team has been working hard on a major review focused on delivering a more efficient and effective organisation,” Tullow Oil executive chair Dorothy Thompson said.

“The fundamentals of our business remain intact: recent reserves audits demonstrate that we have a solid underlying reserves and resources base in West and East Africa, our producing assets continue to generate good cash flow and we retain a high-quality exploration portfolio.

“The board and senior management are confident of the long-term potential of the portfolio and see meaningful opportunities to improve operational performance, reduce our cost base, deliver sustainable free cash flow and reduce our debt.”

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