Tullow writes off $2.3bn as oil price fall takes toll

Irish exploration group Tullow Oil has written off $2.3 billion (€1.95 billion) in relation to exploration work and some of its assets in 2014 and reduced its 2015 investment programme for a second time, the company said on Thursday.

The company, which is working to contain costs amid a dramatic fall in oil prices, also said it was continuing to review its core business, days after a source told Reuters the firm was expecting to make job cuts.

Shares in the company, which owns assets in the North Sea, but which is increasingly focused on Africa, were 3.3 per cent higher in early morning trading on Thursday before paring gains. Shares have fallen by more than 50 per cent over the last year on both the London and Irish markets.

Tullow Oil said it expected to make a gross profit of $0.6 billion for 2014, with revenue of $2.2 billion and pre-tax operating cash flow of $1.5 billion.

The group said it expects a write-off of $0.4 billion in relation to 2014 exploration activities primarily relating to Norway, Mauritania and Ethiopia. Tullow said that in light of the dramatic fall in oil prices, it was also writing off a further $1.2 billion from previously reported unsuccessful offshore drilling activities in French Guiana, Mauritania and Norway.

Tullow said capital is to be re-allocated towards production assets and the commercialisation of existing discoveries that generate “significant value and near-term cash flow for the group.”

The group said its 2015 capital expenditure is now expected to be $1.9 billion, versus an earlier $2billion estimate .

Tullow, which is quoted on the Irish, London and Ghanaian stock exchanges, has interests in over 140 exploration and production licences across 24 countries.

It said its ongoing hedging programme provided revenue protection last year resulting in a realised post hedge oil price for the year of $97 per barrel. Approximately 60 per cent of Tullow’s 2015 entitlement oil sales are currently hedged with an average floor price of around $86 per barrel with further hedges already in place for 2016 and 2017.

“Tullow has already taken steps to strengthen the business to adapt to current market conditions. This work will continue during 2015 to ensure the group is in a position to benefit when conditions improve. In late 2014, we materially reduced our 2015 exploration capital expenditure and today announce a further cut to this expenditure to $200 million. We continue to carry out a review of the business to streamline processes and improve efficiencies which will result in significant long-term cost savings,” said chief executive Aidan Heavey.

“While this is a challenging time for our sector, Tullow is fortunate to benefit from world-class, low cost and high margin assets, strong and growing cash flows and a broad, diversified funding position,” he added.

Tullow is expected to reports full-year 2014 results on February 11th.

Additional reporting: Reuters