Tullow Oil expects write-offs of $1.5bn

Troubled oil and gas explorer Tullow Oil expects to report pre-tax impairments and exploration write off of about $1.5 billion (€1.34 billion) on the back of a reduction in its long term assumption of the price of oil.

In a trading update on Wednesday, Tullow said it reduced its long term accounting assumption of a barrel of oil from $75 to $65. It also flagged an $800 million write off on exploration costs driven by a lower value of its Kenyan and Ugandan assets.

Tullow Oil came under pressure toward the end of last year with its shares plunging to a 20 year low after it cut its oil production forecasts, cut its dividend and announced that its former chief executive and exploration director had quit the company. Since then it reported that it had found less oil than expected after drilling an offshore well in Guyana.

Since its troubles in December, the company's senior team has been "working hard on a major review focused on delivering a more efficient and effective organisation", said Dorothy Thompson, Tullow's executive chairwoman.

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The board’s business review is set to cover all areas of Tullow’s operations and the company has already worked to simplify the organisation’s senior leadership team. The recruitment of a new chief executive is also said to be “well under way”.

Full year

In its Wednesday update to the market, Tullow said full year revenue for 2019 is expected to be about $1.7 billion with gross profit on track to be $700 million. Free cash flow, meanwhile, is expected to be $350 million with net debt down to $2.8 billion.

But those results compare unfavourably with 2018, when revenue rose to $1.86 billion and gross profit stood at more than $1 billion. Free cash flow in the same year was $411 million, down from the $543 million reported a year earlier.

For the coming year, Tullow anticipates spending of $100 million on decommissioning some of its assets with an additional $350 million budgeted for capital expenditure. Nevertheless, production guidance for the coming 12 months remains unchanged at between 70,000 and 80,000 barrels of oil per day. The majority of that will come from Ghana.

"The fundamentals of our business remain intact: recent reserves audits demonstrate that we have a solid underlying reserves and resources base in West and East Africa, our producing assets continue to generate good cash flow and we retain a high-quality exploration portfolio.," said Ms Thompson.

“The board and senior management are confident of the long-term potential of the portfolio and see meaningful opportunities to improve operational performance, reduce our cost base, deliver sustainable free cash flow and reduce our debt,” she added.