Tullow Oil shares plummeted by more than 27% to a 21-year low after the Irish-founded exploration company said production from flagship projects in Ghana has disappointed and that it will reassess the commercial viability of recent discoveries made in South America.
The stock sank on the news that crude from two wells in the South American country was found to be heavy, with a high sulfur content. That’s disappointing to shareholders, as the Guyanese discoveries, earlier this year, had countered concerns over troubled ventures elsewhere.
Tullow struck oil twice off Guyana this year, in a drilling campaign that has been closely watched, following earlier finds in the area by ExxonMobil.
Tullow’s success there helped to offset concerns over its operations in Africa, where technical difficulties have hampered output in Ghana and projects in Uganda and Kenya have faced delays. “The commerciality of both discoveries is still being assessed and our options are being reviewed,” said Tullow spokesman George Cazenove.
“The quality of the reservoir and the significant over-pressure are positive, and while oil of this type is sold in global markets, we need to do more work on the various parameters.”
Tullow also reduced its 2019 oil-output forecast, citing the problems in Ghana. It now expects to pump an average of about 87,000 barrels a day this year, down from previous guidance of as much as 93,000 a day.
“Tullow Oil’s last trading update for 2019 will make disheartening reading for shareholders,” said Davy analyst Job Langbroek.
“Unfortunately, this clouds genuine progress in Kenya, further debt reduction, and a restart to dividend payments. Production issues will be resolved and multiple light oil targets offshore Guyana remain, but, for now, a catalyst is required to demonstrate the upside in the investment theme,” he said.
“Tullow remains confident of the potential across the multiple prospects” in the Guyana’s Orinduik and Kanuku blocks, Tullow said, in its trading statement. Results from the next well in the drilling campaign — Carapa — are expected by the end of the year.
The company forecast full-year capital spending at about $540m (€490m), free cash flow at about $350m, and net debt at around $2.8bn. Tullow chief executive Paul McDade said progress is being made in Africa and the company is working closely with its joint-venture partners in Ghana to ensure that both its fields there “perform to their potential”.
Additional reporting Bloomberg