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Tullow Oil in crisis

CEO out, dividend suspended and guidance cut
Tullow Oil in crisis


Oil and gas producer and explorer Tullow Oil* (TLW) has revealed major issues across the business less than a month after trimming production guidance and announcing a shock negative result at its Guyana offshore prospects. Chief executive Paul McDade and exploration director Angus McCoss have resigned by mutual agreement, effective immediately, after the run of poor performance.

IC TIP: Sell at 59p

Investors looked for a quick exit on the news, causing a massive sell-off and sending Tullow’s share price down by 70 per cent to 40p on 9 December. 

The company has cut 2020 guidance to 70,000-80,000 barrels of oil per day (bopd), down from the 87,000 bopd in 2019, and average production guidance over the next three years is down to an average of 70,000 bopd, compared with Panmure Gordon’s forecast of 100,000 bopd. 

The biggest year-on-year fall between 2019 and 2020 is expected to be the TEN field in Ghana, with production falling from 28,700 bopd this year to 23,000 bopd. Tullow has struggled with TEN this year and said the guidance cut came from mechanical issues and "faster than anticipated decline" at the Enyenra area. On top of these production forecast reductions, the Enyenra reserve will cut by around 30 per cent according to newly-promoted COO Mark MacFarlane. The smaller drop in forecast production at the Jubilee field - which has not seen its reserves reduced - was linked to higher downtime than expected in 2019 and lower demand from the gas offtake, cutting the amount of oil that can be produced. 

The company kept its forecast of 2019 free cash flow of $350m (£266m), but said this would fall by $200m in 2020 and has suspended the dividend. 

Chairman Dorothy Thompson has taken on Mr McDade’s responsibilities, and CFO Les Wood has stayed on. Ms Thompson said the dramatic set of changes would eventually improve the company’s performance, with the help of “renewed vigour” from new management. “We are taking decisive action to restore performance, reduce our base and deliver sustainable free cash flow,” she said. Mr McCoss won’t be replaced as exploration director. 

The Ghana and Guyana issues during the year were accompanied by Tullow choosing to let a farm-out deal for its Lake Albert project in Uganda expire in August over a stalemate with the government. The arrangement would have seen Tullow cut its share from 33 per cent to 11.8 per cent for $900m. Asked if the Uganda stake was for sale as a knockdown asset following the company’s analyst call, Ms Thompson said it would be “very irresponsible” to not get as high a price as possible for Lake Albert.

The high point in recent months for Tullow was the initial exploration success at the Guyana offshore wells Jethro and Joe. Excitement over Jethro in August sent the share price over 200p. But last month Tullow and its partners on the project deflated market hopes after further testing showed heavy crude oil at Joe and Jethro instead of the expected light oil.