Tullow Oil: ‘capital discipline remains critical’

Tullow Oil stressed it would remain focused on capital discipline this year as it seeks to refinance its debt, which widened 19 per cent to $4.8bn last year.

The Africa-focused oil explorer, which last month announced a change in leadership, stressed in its full year results on Wednesday that its free cash flow this year would go primarily towards reducing its debt.

Tullow last year produced the first oil from its Tweneboa-Enyenra-Ntomme (Ten) deepwater project in Ghana, improving its cash flow.

“Production from Ten, alongside our other West African oil production, has provided Tullow with positive free cash flow and enabled us to begin the important process of deleveraging our balance sheet,” said chief executive Aidan Heavey, who will step up to the role of chairman from April – a move that goes against corporate governance guidelines. He will be replaced as chief executive by Paul McDade, Tullow’s chief operating officer.

Tullow plans to refinance during the course of this year. Although its net debt widened last year from $4bn at the end of 2015, the group stressed it had “significant” headroom in its debt facilities and free cash of $1bn at the close of 2016.

Tullow last year succeeded in narrowing its losses after tax to $597.3m from more than $1bn a year earlier, despite a 21 per cent dip in revenue to $1.3bn.

The company said a cost-cutting programme started in 2015 – described as a “major simplification project” – would generate greater than expected savings by mid-2018 of $600m, up from an initial estimate of $500m. By the end of last year, savings of $300m had already been achieved, the company said.

Last month the group announced it would sell a further stake in the Lake Albert oil project in Uganda to France’s Total for $900m, reducing its capital expenditure commitments in the next two to three years.

The company has already guided that its production is expected to average 78,000-85,000 barrels of oil per day this year – up from 65,500 b/d in 2016 – but it last month lowered its guidance for the Ten field by 15,000 b/d to 50,000.