Tullow braces for tough 2020 after year of setbacks

London — Tullow Oil is hoping to emerge leaner and more centralized after suffering a series of exploration, production and organisational setbacks last year, it said Thursday.

However, with oil prices crumbling in the last few months, companies like Tullow are under pressure. The independent oil and gas operator is set to endure a very difficult 2020, with the potential of asset sales likely, according to analysts.

The company's executive chair, Dorothy Thompson, said the group had had to be restructured after an intense few months but remained confident that the company would pull through this rough patch.

Tullow is now adopting a "more conservative capital structure," which has resulted in a 35% cut in staff and the suspension of a dividend, Thompson added.

Production in 2020 will average 70,000–80,000 b/d, in line with previous guidance. Output will reach 70,000 b/d for 2021-22 as it deals with some output ramp up issues at its Ghanaian assets, it said. Tullow produced 86,800 b/d in 2019. The Jubilee field is performing well after a gas processing facility was upgraded, it added.

Earlier this year, it reduced its reserves due to operational issues at a flagship field in Ghana and a lower price outlook.

The total exploration write-offs and impairments for the year ended December 31, 2019 were $1.253 billion, including revised write-off from its Ugandan assets.

Portfolio management

The company plans to raise $1 billion from portfolio management and has also halved its exploration budget to $75 million to survive in the current low oil price environment, it added.

During the analysts' call, Tullow's board members confirmed that the company may be looking to selling some of its assets but added they could not reveal more due to the information being commercially sensitive.

Tullow, however, confirmed that a formal sales process has been launched to sell some of its Kenyan stakes.

"We are focused on delivering reliable production, lowering our cost base and managing our portfolio to reduce our debt and strengthen our balance sheet," Thompson added. "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."

East Africa delays

Progress at Tullow's Kenyan and Ugandan projects remains sluggish.

Final investment decisions for the Turkana development in Kenya have been repeatedly delayed due to issues obtaining approval for use of the land and water rights. Tullow said progress on these streams had been slower.

The target of reaching an FID by the end of 2020 becomes more challenging as progress on land and water issues remains slow.

The early oil pilot scheme in Kenya remains suspended since the fourth quarter of last year due to severe damage to roads caused by adverse weather.

In Uganda, Tullow is still awaiting a resolution of a capital gains tax dispute between the Ugandan government and its partners. As a result, the sale of its assets to Total and CNOOC for $900 million remain halted.

Tullow said it remains committed to reducing its equity stake in the project ahead of FID and is working constructively with its partners and the government to agree way forward.

On Wednesday, an official from Uganda's ministry of energy said the government was close to an agreement with France's Total and its partners on the Lake Albert oil project.

Recent hurdles

In Guyana, Tullow is looking to integrate well results of Jethro-1, Joe-1 and Carapa-1 into "updated geological and geophysical models, with a focus on the high-grading of the Cretaceous portfolio where better quality oil is expected across both the Kanuku and Orinduik blocks."

Tullow's shares took a tumble in November after the company said its promising Joe and Jethro oil finds off Guyana were not as valuable as first expected due to the oil being tough-to-produce heavy crude.

The company has found it tough to recover after that.

On December 9, its shares fell more than 70% on the day after CEO Paul McDade and Chief Exploration Officer Angus McCoss both resigned due to a series of disappointing exploration and production results at its key assets.

In London-afternoon trade, Tullow's shares were down by almost 20% on the day.

The recruitment of a new CEO is well under way with a final short-list being considered by the Tullow board. Meanwhile, Amalia Olivera-Riley, formerly of Repsol and Exxon Mobil has been appointed as the company's new head of exploration.

Tullow posted a net loss of $1.69 billion for the year ending December 31, 2019 and said it expects to generate underlying free cash flow of at least $50 million-$75 million from 75,000 b/d at $50/b.