Tullow hopeful despite annual loss

Tullow Oil’s management is hopeful the company will return to profit this year, after posting its first net loss for 15 years in 2014.

As well-flagged, the Irish-founded exploration and production company yesterday formally posted its first annual loss for a decade and a half; with pre-tax losses for 2014 topping $2bn and wiping out profits of $313m from a year earlier. Revenue was down by 16% to $2.21bn, with gross profit down by 27% to $1.1bn. After-tax losses amounted to $1.64bn.

With a final dividend suspended, the annual payout is down by nearly 70%, from 12p to 4p per share.

The poor figures were driven by falling oil prices and write-offs and impairments relating to disappointing exploration activity in certain territories.

Tullow is looking for cost savings of $500m over the coming three years and has already said that it will cut exploration spend from $1bn to $200m, with that money targeting high impact, low cost opportunities in eastern Africa.

The bulk of Tullow’s overall $1.9bn in capital expenditure, this year, will go towards its high-quality oil production assets in western Africa; notably the offshore Ghana fields of Jubilee and TEN. The latter is halfway complete and on track for first oil production by the middle of next year. Tullow has also shelved plans to farm out part of its near 50% stake in the venture, on the basis that big projects like this tend to just get bigger.

Chief executive Aidan Heavey said the company is ahead of the curve in resetting its position amidst the new oil price environment and remains well-placed for recovery and growth.

Hedging is in place for the next three years, removing too much concern over immediate price volatility.

“These measures will provide us with substantial headroom and liquidity to deliver on our strategy. The TEN project in Ghana, which remains on track, will increase our net West Africa oil production to over 100,000 barrels of oil per day by the end of 2016, generating substantial cash flows and placing Tullow in a strong position when the sector recovers,” he added.

According to Caren Crowley of Davy Stockbrokers: “There is no change to Tullow’s liquidity position, with the group having bank facility headroom of $2.3bn debt and $100m cash. A redetermination of the group’s main lending facility is scheduled for March and from one perspective the cut in the dividend could be viewed as helpful in discussions with lenders.

“The group’s hedging programme is also attractive, with a mark-to-market value of $500m as of the end of December,” Ms Crowley added.