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(Alliance News) - Tullow Oil PLC said Thursday it will be significantly reducing expenditure and also warned that the recent oil price crash could cast "significant" doubt over its future.
Shares were down 15% on Thursday morning in London at 15.50 pence each. They have lost 93% in the last 12 months, and it is set to be relegated from the FTSE 250 index later in March.
Tullow has recently been carrying out a business review following a disappointing 2019, which included missing production targets, disappointing well results, and the suspension of its dividend.
Chief Executive Paul McDade left in December "by mutual agreement following disappointing business performance". Tullow said Thursday progress is being made in finding a successor, with the final shortlist now being considered.
Following the review, capital expenditure in 2020 is being cut by 30% to around USD350 million and exploration spending by 45% to around USD75 million. Tullow is also cutting 35% of its workforce, closing offices in Cape Town and Dublin.
Tullow has also identified "portfolio management options" which could raise over USD1 billion to bolster the balance sheet. A formal sale process has been launched in Kenya, where it owns four licences covering 560 million barrels of recoverable resources.
This comes following a slump in price of oil, amid the worldwide spread of covid-19 and a failure by major oil producers to agree on output cuts to arrest the slide.
"At the time of issuing the annual report and accounts there are unprecedented market conditions with significant oil price volatility following the demand implications driven by covid-19 and the failure of OPEC and Russia to reach agreement to cut oil supply to balance markets," said Tullow.
"Therefore, this increases the risk the group may not be able to sufficiently progress any planned portfolio management activities, as a result of which its lenders may not approve the semi-annual reserves-based lending redetermination liquidity assessments or covenant amendment if subsequently required. Therefore, we have concluded that there is a material uncertainty, that may cast significant doubt, that the group will be able to operate as a going concern," it added.
Brent was quoted at USD33.78 a barrel on Thursday morning, having been at USD70 early in 2019.
Turning to 2019 financial results, Tullow's revenue fell 9.7% to USD1.68 billion. Production was 86,800 barrels of oil equivalent per day on average, compared to initial guidance of 90,000 barrels to 98,000 barrels per day.
This was then cut in July to 89,000 barrels to 93,000 barrels, before yet another guidance cut in November to 87,000 barrels per day.
Production guidance for 2020 is between 70,000 barrels and 80,000 barrels of oil equivalent per day.
Tullow posted a pretax loss of USD1.69 billion, compared to a profit of USD260.5 million the year prior. This was hit by more than USD1.2 billion of exploration cost write-offs and USD780 million of impairments.
"This has been an intense period for Tullow as we have worked hard on a thorough review of the business which has led to clear conclusions and decisive actions. We are focused on delivering reliable production, lowering our cost base and managing our portfolio to reduce our debt and strengthen our balance sheet," said Executive Chair Dorothy Thompson.
"Even with recent events in oil markets, Tullow's assets remain robust: we are a low-cost African oil producer, with a strong hedging position, substantial reserves that underpin our business and a high potential exploration portfolio."
By George Collard; georgecollard@alliancenews.com
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