Tullow Oil shares slip as Aidan Heavey announces exit

Shares in Tullow Oil fell up to 3% yesterday after the Irish-founded exploration company announced its founder and chief executive Aidan Heavey is to step down and that its 2016 revenues are likely to have fallen by almost 19%.

In a wide-reaching end-of-year trading update and board change statement, Tullow said chief operating officer Paul McDade will take over as chief executive in late April.

Mr Heavey has led Tullow since founding the company in 1985. He will become chairman, depending on shareholder approval, succeeding the outgoing Simon Thompson.

Mr Heavey’s proposed chairmanship will last for a transition period of a maximum of two years.

Mr Heavey said that there had been no pressure on him to stand aside and institutional investors are happy with the transition plan and that it had always been Tullow’s intention to overhaul its management team when the company had completed its rebalancing effort in the wake of the lower oil price environment.

That ‘cycle’ was completed, earlier this week, with the sale of a portion of its Ugandan-based assets, he said.

Mr Heavey will only start becoming less active at Tullow in 2018 at which point the company will actively start searching for a new chairperson. He said 2017 was an ideal time for a new team to “drive the plan of action for the next three-to-five years”.

Tullow’s board said it sees a phased transition in the group’s leadership as being “appropriate”, given the unique nature of the company’s business in Africa.

However, the news made some analysts jittery.

“All of these changes in quick succession may suggest some instability among the executive ranks in Tullow, which we feel adds additional risk to the investment case now,” said Dylan Simmonds of Merrion Stockbrokers.

Tullow shares rallied in late trading to close the day down by just under 1.7% at £3.15 (€3.63) in London.

Davy Stockbrokers’ Job Langbroek said the board changes shouldn’t come as much of a surprise, but expressed concern that slow progress at Tullow’s combined Tweneboa, Enyenra, Ntomme fields off the coast of Ghana is hampering share price growth.

Production levels from these fields are 50,000 barrels of oil per day and will remain as such until Tullow can start drilling more wells once a border dispute between Ghana and the Ivory Coast is concluded later this year. Tullow may also choose to sell part of its holding in the fields to aid debt repayment.

Tullow is due to publish its 2016 annual results on February 8. The company yesterday said its revenues for last year are likely to amount to around $1.3bn (€1.2bn), which would be nearly 19% down on the previous year. Gross profit is set to be around $500m, down 15%.

Tullow incurred around $700m in various accounting charges last year — including exploration writeoffs, service contract charges and goodwill impairments — reflecting the impact of farm-downs, disposals and the oil price environment.

Another drop in capital expenditure — from $900m to $360m — is expected this year, while debt repayment is also set to feature.

Tullow’s net debt is estimated to have closed 2016 at around $4.8bn and Mr Heavey said that could fall to $2.5bn-$3bn over the next three years.