Tullow Oil cuts capital expenditure amid falling prices

Tullow Oil has slashed its capital expenditure amid write-offs totalling at least $915 million this year, as the company contends with oil prices that have slipped to 11-year lows.

The Africa-focused oil group said it had booked exploration write-offs worth $400 million (€368.6 million ), impairment charges of $300m and an “onerous rig contract charge” of $200 m illion “as a result of much lower levels of exploration and appraisal drilling activity planned for 2016”. It also suffered a $15m goodwill impairment charge.

Tullow said it would cut its capital expenditure to $1.1 billion in 2016 from $1.7 billion in 2015 and “is looking at additional opportunities to reduce it further”. It also said it had spent $200m less than expected in 2015.

Tullow’s shares jumped 8 per cent to 113p after the update on Wednesday, having slid to an 11-year low on Tuesday.

On a brighter note, the company said its Ten project off the coast of Ghana, one of its major west African fields, was 80 per cent complete and should begin producing oil in July or August this year.

The company is waiting for a giant ship from which it will drill to leave Singapore, where it was built, and arrive in Ghana.

Aidan Heavey, chief executive, said: "We have made excellent progress on the development of the Ten project, which is on track to begin production in the middle of 2016, and we expect the group to be producing around 100,000 barrels per day in west Africa in 2017."

The company said it expected revenue to total $1.6bn for the year to the end of December 2015, down 26 per cent from the previous year. It said its pre-tax operating cash flow would be $1 billion, in line with market expectations. It said gross profit for 2015 would be $600 million.

In October Tullow agreed fresh terms with its lenders that ensured it would continue to have access to $3.7 billion of debt. But there has not been much relief since, as oil prices have continued to slide.

Mr Heavey said: “We continue to focus on driving down our costs and capital expenditure and, at the beginning of 2016, Tullow has a mark-to-market hedge value of over $600 million and financial headroom of $1.9 billion. Accordingly, we have a diversified balance sheet which supports our planned activities for the year ahead.”

- Copyright The Financial Times Limited 2016