Tullow Oil Plc has said that the oil price slump may jeopardise planned $1 billion asset sales designed to refill its coffers as the Africa-focused group’s lenders may balk at approving loans, threatening its future.
According to the company, the oil price slide might thwart the asset sales which may stop its lenders from approving semi-annual reserve-based loans or amendments to its debt covenants if required.
As at about 5pm Thursday WTI was trading at US$31.65 per barrel while Brent was trading at US$33.72 per barrel.
“If oil prices remain at or below their current levels for an extended period of time, this would adversely impact our future financial results,” Tullow said in a statement posted on the company’s website.
The company said it expects its free cash flow to slide to $50 million-75 million this year at an oil price of $50 a barrel, but hopes to raise cash from the asset sales.
Free cash flow at the group had already fallen last year to $355 million from $411 million in 2018. Highly-indebted Tullow expects to break even at prices of $45 a barrel.
Tullow said it expected its debt facility to be confirmed this month at $1.9 billion, of which it can still tap $700 million.
It said it would slash its investment budget by about a third to $350 million this year and cut its exploration spending, historically the focus of the group, by almost half to $75 million. That will be weighted towards its fields in Ghana.
The company, which is also shrinking its workforce by about a third, said it has drawn up a final shortlist of chief executive candidates to replace Paul McDade, who resigned in December.
Tullow has hedged around 45,000 barrels a day of its 2020 production at a floor price of $57.28 a barrel, and around 22,000 bpd of its 2021 output at a floor of $52.78 a barrel.
Below is Tullow’s 2020 Outlook
- Group production year-to-date in line with expectations; full year guidance of 70,000 – 80,000 bopd
- Jubilee performing well after gas processing facility upgraded, increased gas offtake agreed, and sea-water injection capacity optimised; Nt-09 production well at TEN on-stream in Q2; non-operated West African production in line with expectations
- Capex of c.$350 million, down c.30% from 2019; exploring options to reduce further if required
- 2020 free cash flow forecast of $50-$75 million at $50/bbl; free cash flow breakeven of c.$45/bbl
- 60% of 2020 sales revenue hedged with a floor of $57/bbl; 40% of 2021 sales revenue hedged with a floor of $53/bbl
- RBL redetermination ongoing; expected c.$1.9 billion debt capacity at the end of March; liquidity of c.$700 million
