Tullow Oil cuts spending, West African production

November 11, 2016 | Company Operations, Development / Production, Expenditures & Funding

London, UK |  –  UK and London-listed leading independent oil exploration and production company, Tullow Oil has lowered its spending again on Wednesday in the face of low oil prices and cut production targets due to the slower than expected increase in output from its new TEN oil fields offshore Ghana.

Two years of weak oil prices have forced Tullow to make stringent cost cuts and scrap its dividend and the Africa-focused company also faced a technical issue at its prized Jubilee field in Ghana that forced a month-long shutdown.

The company said efforts to repair a broken turret at the field remained on track to be completed next year and would result in another shut down of up to 12 weeks though insurance cover would offset lost production.

Chief Executive Aidan Heavey has tightened spending in response to the oil price slide, with capital expenditure down a quarter in the first half of the year.

Tullow said on Wednesday it had cut its 2016 capital expenditure budget to $900 million from $1 billion and expected 2017 spending to be in the $300 million to $500 million range.

Tullow shares were 1.3 percent higher at 1141 GMT following the trading update, an increase of 57 percent since the start of the year.

The company said it expected net output to be 64,000-67,000 barrels of oil equivalent per day (boepd) for the year in West Africa compared with its June forecast of 62,000-68,000 boepd due to the slower increase in production from TEN fields since its first oil started to flow in August.

In Kenya, Tullow expects to launch a production pilot in mid-2017 that will involve trucking about 2,000 bpd to the port of Mombasa, Chief Operating Officer Paul McDade said.

Tullow, like many of its rivals, slashed exploration spending in 2014 but as the sector slowly emerges from one of its longest downturns, it is slowly reviving its search for new resources.

It expects to resume drilling in Kenya in December 2016 with four wells in the South Lokichar basin. It has also completed a geological survey in Suriname and plans to study opportunities in offshore Guyana, Uruguay, Mauritania and Jamaica.

“This has been a better period to add for our licence portfolio with lower oil prices and less competition. Governments are now realistic that these licences need to work at $50 a barrel looking forward,” McDade said.

Net debt was expected to be about $4.9 billion at the end of the year as the company increased borrowing, mainly to fund investments in TEN, it said.

“We believe Tullow offers attractive leverage to an improvement in oil prices, while it has a clear strategy in place to pay down debt through 2017-19,” said Barclays analysts, who have an overweight/neutral recommendation on the stock.