Tullow Oil chiefs anticipate return to profit this year

Tullow Oil boss Aidan Heavey has said the company should return to profit this year after reaching the end of a four-year cycle of cost write-offs.

The Irish-founded exploration company yesterday reported a post-tax loss of almost $600m (€560m) for 2016; representing its third loss-making year.

As flagged last month, the company’s 2016 revenues fell by 19% to $1.3bn. The $700m, or so, accounting charges that drove the 2016 loss brought to $4bn the amount Tullow has incurred in exploration expenses, impairments and charges in the past four years.

However, Mr Heavey — who is due to switch roles to chairman in late April and be replaced by current chief operating officer Paul McDade as CEO — yesterday said that the company has come to the end of its cycle of cost write-offs, which should help Tullow return to profit this calendar year.

Tullow’s shares dropped by nearly 6% yesterday — before recovering slightly in later trading — on the back of the results announcement. However, analysts have been upbeat on Tullow of late. Currently trading at around £2.90 in London, Deutsche Bank earlier this week put a £3.30 price target on the Tullow stock and, yesterday, Davy said the maintaining of 2017 capital expenditure and production guidance should help the share price reverse its perceived recent underperformance.

A major cause for optimism is Tullow’s debt management. The company yesterday announced a restructuring of the smaller of its two loan facilities. Instead of having to repay $800m this April, the company will repay that figure in installments up to April 2019.

That also bodes well for ongoing discussions with lenders over the refinancing of a larger $3.3bn facility, which is secured against Tullow’s producing assets in Africa.

Mr Heavey said, last month, that Tullow’s total debt levels — around $4.8bn at the end of 2016 — could fall to between $2.5bn and $3bn over the next three years.

“As we focus our free cash flow primarily on reducing our debt, capital discipline remains critical,” Mr Heavey said yesterday.

“We have made excellent progress with our East African developments and are building a high quality exploration portfolio to grow our business. Tullow has the right assets and expertise to take full advantage of the opportunities ahead,” he added.

He also reiterated that the company may sell off part of its holding in the key TEN fields asset, off the coast of Ghana.

However, he stressed this is unlikely to happen until sometime next year at the earliest.

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