Tullow to take $1.5bn hit on oil price and exploration failures
Explorer has been under pressure after being repeatedly forced to cut production outlook
Struggling oil and gas producer Tullow Oil will take a pre-tax writedown of around $1.5bn in its full-year results as it reassesses the long-term price of oil and scraps failed exploration projects.
The FTSE 250 explorer said the impairment costs were the results of a reduction in its long-term accounting oil price assumption from $75 a barrel to $65 a barrel, write downs in the value of some African projects and write-offs of the costs of wells in licence areas it intends to abandon or cut planned activity.
Wednesday’s announcement comes a month after its share price fell 70 per cent as it was forced to slash its 2019 output expectations to a third of their levels at the beginning of the year and parted ways with its chief executive and head of exploration.
Dorothy Thompson, who has been installed as executive chair of the group, said that the group had been “working hard on a major review” since the December tumult.
“The fundamentals of our business remain intact: recent reserves audits demonstrate that we have a solid underlying reserves and resources base in West and east Africa, our producing assets continue to generate good cash flow and we retain a high-quality exploration portfolio,” she said.
Wednesday’s exploration writedowns centre on three disappointing drilling projects off the coast of Guyana, which the company had initially heralded as “potentially transformational”.
It had hoped to tap into the oil-rich waters off the South American nation, where ExxonMobil has discovered an estimated 6bn barrels equivalent of recoverable oil and gas. But the group revealed in announcements in November and this month these were unlikely to be commercialised.
Tullow expects to post production of 86,700 barrels of oil a day for the year, in line with what it had flagged last month. Full year revenue is expected to be around $1.7bn, with gross profit of around $700m.