Tullow in the red for second year as weak oil prices bite
By Karolin Schaps
LONDON (Reuters) - Africa-focused Tullow Oil reported an operating loss for the second consecutive year on Wednesday, as the sharp decline in oil prices cut revenue by 27 percent, and said it was prepared to all but cease making new investments if the low oil price persists.
The London-listed company said it could cut 2017 investments by another 72 percent to $300 million if oil prices remain weak, just a fraction of the $2.2 billion it spent in 2014.
Tullow made a full-year operating loss of $1.09 billion in 2015, a smaller loss than the $2 billion seen the previous year and in line with analysts' expectations, but still reflecting one of the worst spells in the company's history.
The shares were down 4 percent at 155.6 pence at 0921 GMT.
"Our focus is on driving costs down and making as many dollars per barrel as possible," Chief Executive Aidan Heavey told Reuters.
Oil prices have fallen around 70 percent since a peak in mid-2014, one of the worst market downturns in the past decade for producers.
Tullow Oil is banking on extra income from its 80,000 barrels-a-day TEN oil fields development project offshore Ghana, which is situated some 20 kilometres to the west of its flagship Jubilee field and is expected to come on stream in July or August.
Tullow's production costs at TEN are $9-10 a barrel, compared with a current oil price of around $30 a barrel.
"The results statement provides a robust answer to investors uncertain about Tullow's capacity to navigate the downturn," said analysts at Barclays.
However, Tullow said there was a risk, if oil prices remained low, that it might become non-compliant with its financial covenants by the end of the year.
Tullow has also begun discussions with its banks about redetermining its lending terms next month, a standard procedure in the industry.
"We recognise that with oil prices being a bit lower the banks may change the price specs a little bit," Chief Financial Officer Ian Springett told Reuters.
"Whilst we may lose a little bit of debt capacity, it's all within our plans and expectation."
(Editing by Greg Mahlich)
