Tullow shares plummet 70% after group cuts production outlook
Chief executive and head of exploration leave FTSE 250 oil and gas explorer
Shares in Tullow Oil plunged more than 70 per cent after the FTSE 250 oil and gas explorer slashed its production outlook and announced the departure of its chief executive and head of exploration.
The decline knocked more than £1.4bn off the oil group’s market capitalisation and sent its stock to its lowest level since the end of 2000.
Tullow, which was founded in the 1980s to focus on frontier markets of the oil industry primarily in Africa, was worth as much as £14.5bn in 2012. It had been a favourite of UK investors and rode the boom in oil prices for more than a decade, with its shares rising by an average of almost 30 per cent a year between 2000 and 2012.
But it has stumbled in recent years as the era of $100-a-barrel crude oil came to an end with the rise of the US shale industry. The shares, which had already declined sharply from the company’s 2012 peak, closed down nearly 72 per cent on Monday, valuing Tullow at £562m.
Analysts and investors queried whether company executives had talked up Tullow’s prospects too aggressively as it sought to recover from the oil slump, wrongfooting those drawn to one of the few UK explorers still pursuing rapid growth.
Tullow said it expected production to be almost a third lower than it had forecast at the start of the year and also suspended its dividend. Paul McDade, chief executive and Angus McCoss, head of exploration, have left the group.
Dorothy Thompson, the former Drax boss and non-executive chair of Tullow, who has been appointed temporary executive chair, conceded there had been “material errors made in projecting forward production at Tullow”, saying the company had “done a lot of work in the last few weeks to make sure these errors are not repeated”.
She also sought to play down fears about the need for an immediate rights issue. “That is not something on our current agenda at all,” she said, but did not deny the company could be sold for the right price.
Last month, shares in Tullow fell to a two-year low after it said two significant discoveries in waters off Guyana contained heavy oil, prompting warnings that the projects would be difficult to commercialise.
The company now expects to generate just $150m of annual free cash, down from $500m previously, despite also cutting its plans for capital expenditure.
Henry Steel at London-based hedge fund Odey Asset Management, which has been betting against the company’s shares, said the “disaster” of the Guyana exploration update had already led to questions from investors about how Tullow could have talked up the finds without referring to the quality of the oil.
“Management had lost operating and exploration credibility,” Mr Steel said. “This is why the board has acted so decisively, finally.”
Analysts at Stifel said investors’ biggest immediate concern would be the strength of the balance sheet given the increased risk of a potential equity issuance to reduce debt because of the lower projected free cash flow