Tullow Oil feels the heat with operating loss of $309m

Board does not recommend interim dividend as investors ‘better served’ by reinvestment

One of Tullow Oil’s drilling blocks in Turkana County in Kenya. Photograph: Getty Images

One of Tullow Oil’s drilling blocks in Turkana County in Kenya. Photograph: Getty Images

 

Oil and gas exploration company Tullow Oil does not expect to report further impairment charges associated with its development assets, according to chief executive Paul McDade.

Speaking after the company reported an operating loss of $309 million for the first six months of the year, Mr McDade attributed $418 million in impairment charges largely to declining oil prices. The charges came despite the company’s former chief executive, Aidan Heavey, saying in February that he didn’t think there was anything left to write off.

Mr McDade said the last time the company had assessed its assets was at the end of 2016, before a significant drop in oil prices.

The company’s interim operating loss for this year compares to a $30 million profit in the same period of the previous year.

Return to growth

Mr McDade said the company should return to growth in the not-too-distant future as, when it completes its deal to farm down assets in Uganda, it will receive a refund of $100 million.

On the back of a strong increase in sales revenue of 46 per cent to $788 million and a reduction in net debt of 19 per cent to $3.8 billion, the group revised its three-year cash cost savings targets upwards by $150 million.

The revision comes because Tullow has already delivered $400 million in cost savings and expects to meet its targets by the middle of 2018, six months ahead of schedule.

Oil fields in West Africa, a key geographical location in the company’s operation, averaged 81,000 barrels of oil a day (bopd) in the period. The group has maintained its full-year guidance of between 78,000 bopd and 85,000 bopd.

Mr McDade said: “Tullow’s West African business had a strong first half of the year. With TEN [offshore Ghana] currently producing in excess of 50,000 bopd from existing well stock and plans in place for stabilising the turret on the Jubilee FPSO [also in Ghana], I am confident that we are well placed to have an equally strong second half.”

Lower than expected

European production, however, was lower than expected. In the first half of this year, full-year gas production averaged 6,000 barrels of oil equivalent a day.

Analysts at London-based Whitman Howard were positive on the company’s results. “Importantly, production performance from the TEN wells suggests previous reserve estimates are robust. We believe the “derisking” story should start to gain traction from September onwards.”

In 2015, Tullow oil suspended the dividend payment to investors. On Wednesday the board again decided not to pay an interim dividend to investors, suggesting they would be better served by those funds being used in the business.

Davy analyst Caren Crowley said Tullow’s results were “as expected”.

“Its results are in line with guidance and consensus, and we will not be changing our 2017 forecasts. The group is very focused on cost discipline, and to this end has upped its three-year cash-cost savings target.”