Losses soar to €1.7bn at Tullow Oil

Aidan Heavey, the chief executive of Tullow Oil, has conceded its membership of the FTSE 100 index of the biggest companies on London's stock exchange is "under threat", as it deals with the fallout from the collapse in the price of oil.

Mr Heavey also said the company, which has announced losses of $2 billion on Wednesday and cost cuts of $500 million over three years, will operate from now on with a cost base based upon a long-term oil price of $50 a barrel.

Additions and ejections from the FTSE 100 are not automatic, and are determined on a quarterly basis at a panel meeting. Mr Heavey said he did not expect Tullow to be ejected from the index at the next meeting, in March.

“But, yes, our membership is under threat. We could pop out of it if oil prices fall again, but I think we would pop back in when they rise,” he said.

Some funds require that a certain propertio of their investments are in FTSE 100 companies, meaning they might ditch stocks that slip off the index. Mr Heavey, however, said potentially losing its spot “makes no difference to us”.

Revenues for 2014 plummeted by 16 per cent to $2.2 billion at Tullow while “significant write-offs” and impairment charges saw losses before tax of $2 billion (€1.7bn), its forst loss in well over a decade.

Aidan Heavey, chief executive with Tullow told investors 2014 “was a difficult year for our industry and a challenging one for Tullow”.

“In response to this, and the fall in the oil price, we have reset our business and are focusing our capital expenditure on high-quality, low-cost oil production in West Africa.

“We have increased and diversified our sources of debt capital, reduced our exploration expenditure, implemented significant cost saving initiatives and we are suspending the dividend,” he said.

Tullow employs about 140 people in Ireland at its offices in Leopardstown in south Dublin. The company on Wednesday a major internal review of the organisation is ongoing which will lead to substantial long-term cost savings.

Mr Heavey said the Dublin office, which houses a high proportion of its geology team, “would not close” but a decision on potential cuts would be made “within the next three or four weeks”.

On capital expenditure, Tullow said that the 2015 figure is forecast to be $1.9 billion with further reductions targeted; “this includes a materially reduced exploration and appraisal budget of $200 million which includes basin-opening wells in Kenya, Norway and Suriname” Tullow said.

In Ghana, the group’s Ten project remains on track, and Tullow will increase its net West Africa oil production to over 100,000 barrels per day by the end of 2016 “generating substantial cash flows and placing Tullow in a strong position when the sector recovers.”

At the end of 2014 the group had net debt of $3.1 billion and facility headroom and free cash of $2.4 billion.

Tullow Oil said that it has suspended its dividend, with no final dividend payment for 2014 resulting in full year 2014 dividend of four pence per share.

In a note, Davy Stockbrokers said that “while restructuring will be challenging and take time, guidance does demonstrate a bias to action”.