Aidan Heavey predicts Tullow asset sell-off

Aidan Heavey, chief executive of exploration company Tullow Oil, has suggested it may sell some of its prize assets in the future to generate returns for shareholders.

Mr Heavey, speaking after it announced a quarter drop in its annual revenues and losses of $1 billion, insisted the company is fundamentally financially robust, despite the plunge in its share price due the collapse in oil prices.

When asked if he feared the company would be vulnerable to takeover once the price of oil starts to recover, due to its vast reserves, he said shareholders would probably get a better return from selling individual assets.

He said Tullow's plan was to sell off stakes in some of its biggest projects over time, such as those in Kenya and Ghana. "In some of those projects, we hold 50 per cent. Those are some chunky interests. Sell one of those and our debt is gone," he said.

Mr Heavey said there was no timeline on selling down some of Tullow’s prime assets, but the company was capable of doing it “at the appropriate time”.

Oil price collapse

Tullow’s results, which were well-flagged and were also impacted heavily by writedowns on the value of its assets, precipitated a 14 per cent drop in its share price on the

Irish Stock Exchange

yesterday. Along with its peers, Tullow has been hammered by the collapse in oil prices and it has also faced scrutiny over its $4 billion debt pile, which Mr Heavey said it can manage comfortably.

He predicted that oil would rise from its value of about $30 a barrel to “somewhere in the 60s” by the end of the year. Mr Heavey predicted it could settle at between $70 and $80 a barrel next year.

“But eventually, it could also go higher. Academics say no because the world is awash with oil. But the current lack of investment means supply will not meet demand at some point in the near future.”

Tullow deployed capital of $1.7 billion in 2015 with $1.1 billion forecast for this year, but the company said it is capable of reducing capital expenditure to $300 million in 2017 if it needs to. “We could use our cash to pay debt instead if we have to. We are trying to send the signal that our debt is not a material problem.”

Operating profitably

Mr Heavy said he hoped the writedowns that affected its results for 2015 “would be the last of the impairments” and said the underlying business “is operating profitably”.

He said that after the TEN project in Ghana moves into production in late summer, the company from 2017 onwards will be able to extract oil for a cash cost of $8 per barrel.

“So even if oil prices go lower for longer, we will then still be profitable,” he said.

It is in talks with its banks to reschedule the repayments on its loans, including a $1 billion facility that expires April next year.

He said it is likely to seek an extension of that facility “of another year or so”.

Despite the oil price travails affecting the whole industry, Tullow is confident its free cash of $1.9 billion and its operating cashflow of $1 billion give it the flexibility.

Production for 2016 is projected to be 82,500 barrels per day, up 12 per cent on last year. This is set to increase to 100,000 barrels per day in 2017 as its heavy investment in Africa bears fruit.