Tullow Oil is to take a $2.3bn (€1.97bn) hit as a result of plummeting world oil prices.
In an end-of-year trading update yesterday, the Irish-founded firm, which is predominantly focused on Africa, said it was widening the scope of its previously announced budget cuts for exploration spend this year.
When the company reports its 2014 annual results early next month, management expects the numbers to show revenues of $2.2bn and gross profit of $600m. Respectively, these figures would be down from $2.34bn and $1.34bn from last year. Tullow reported a net loss of $95m for the first half of last year, a figure mainly driven by previous write-offs.
In November, the company said its exploration spend in 2015 would shrink from nearly $1bn to just $300m. Yesterday, it lowered that forecase to $200m. In terms of non-cash write-offs and impairments, $400m will likely relate to disappointing 2014 exploration activity in Norway, Mauritania, and Ethiopia. In light of the drop in oil prices, a $1.2bn write-off of drilling and licensing costs is also being factored in. An additional impairment charge of $600m is anticipated, while a $500m loss on disposal charges is also due. Overall, however, Tullow management feels the business remains “well-positioned for future success”.
“Tullow has already taken steps to strengthen the business to adapt to current market conditions,” saiid CEO Aidan Heavey. “This work will continue during 2015 to ensure the group is in a position to benefit when conditions improve.”
Mr Heavey added that management will continue to review the business in order to streamline processes and improve efficiencies, “which will result in long-term cost savings”.
“We have re-allocated our future capital to focus on delivering high-margin oil production in West Africa, which will grow significantly to around 100,000 barrels of oil per day net to Tullow by the end of 2016 and will generate stable, long-term cash flows for the business,” said Mr Heavey. “The reduced exploration programme will predominantly focus on a number of high-impact, low-cost exploration opportunities in East Africa.
“While this is a challenging time for our sector, Tullow is fortunate to benefit from world-class, low cost and high margin assets, strong and growing cash flows and a broad, diversified funding position.”
Tullow’s share price was down by just under 1%, in London yesterday, on the back of the update.
Elsewhere yesterday, Dublin-based explorer Petroceltic said that it had reduced its net debt last year from $246m to $153m, with annual production levels coming in at the top end of guidance at 22.6 thousand barrels of oil equivalent per day.
CEO Brian O’Cathain said: “The current volatility in oil markets, while challenging, has a limited impact on our daily business, as most of our production is fixed-price gas in Egypt or Bulgarian gas priced on a long time lag. Our Algerian gas and condensate production is not due on stream until the second half of 2018, when most market commentators and indeed the forward curvesuggests that oil will be priced at a significant premium to current levels.”
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