Shares in oil and gas company Tullow Oil tanked on Monday morning after the company announced the departure of its chief executive and exploration director as well as plans to reduce capital expenditures and suspend the dividend.
Paul McDade, Tullow Chief Executive Officer, and Angus McCoss, Exploration Director, have resigned from the board of Tullow by mutual agreement and with immediate effect, Tullow said in a statement on Monday.
According to Reuters, Tullow’s shares tumbled 57% at 60.66 pence by 0954 GMT, the shares’ biggest daily loss since 2004.
Dorothy Thompson has been appointed Executive Chair on a temporary basis and Mark MacFarlane, Executive Vice-President, East Africa and Non-Operated, has been appointed as Chief Operating Officer in a non-Board role. Les Wood continues as an Executive Director and Chief Financial Officer.
McDade and McCoss will not receive any compensation or payment for the termination of their employment agreements or for their ceasing to be directors.
The board has initiated a process to find a new group chief executive.
The company expects 2019 full year net production to average c.87,000 bopd. The company also expects to deliver free cash flow of c.$350 million, has liquidity headroom in excess of $1 billion and no near-term debt maturities.
Tullow said that, whilst financial performance has been solid, production performance had been significantly below expectations from the group’s main producing assets, the TEN and Jubilee fields in Ghana.
Tullow cuts output estimate & capex
Tullow said that a review of the production performance issues in 2019 and its implications for the longer-term outlook of the fields had been undertaken and had shown that the group needs to reset its forward-looking guidance. 2020 group production is forecast to average between 70,000 and 80,000 bopd. Group production for the following three years is expected to average around 70,000 bopd.
A number of factors have been identified that have caused this reduction in production guidance.
On the Jubilee field, these factors include significantly reduced offtake of gas by the Ghana National Gas Company which Tullow makes available at no cost, increased water cut on some wells, and lower facility uptime. At Enyenra (one of the TEN fields) mechanical issues on two new wells have limited the well stock available and there is faster than anticipated decline on this field. The non-operated portfolio is performing well, and production is expected to be sustained for the medium term.
Independent reserves audits carried out during the year indicate that oil reserves are likely to remain broadly flat at year-end 2019 compared to the previous year-end (excluding the impact of 2019 production). The audits show increased oil reserves for Jubilee, Ntomme (one of the TEN fields) and the non-operated fields which are largely offset by a c.30% decrease in Enyenra reserves.
In light of these new production forecasts, there will be a thorough reassessment of the group’s cost base and future investment plans in order to allocate appropriate capital to the group’s core production assets, development projects, and continued exploration.
These actions include reducing capital expenditure, operating costs, and corporate overheads.
In 2020, the board expects the group to generate underlying free cash flow of at least $150 million at $60/bbl after a group capital investment of c.$350 million.
Considering this level of expected free cash flow, the board has decided to suspend the dividend.
Tullow board ‘disappointed’
Dorothy Thompson, Executive Chair, commented: “I would like to thank Paul and Angus for all their hard work and dedication to Tullow over many years. They leave behind a business that has delivered two major offshore developments in Ghana, made significant oil discoveries in Kenya and Uganda and has a high-impact exploration portfolio. These remain the key building blocks of our business today.
“The board has, however, been disappointed by the performance of Tullow’s business and now needs time to complete its thorough review of operations. A full financial and operational update will be provided at Tullow’s Full Year Results on 12 February 2020, with an update on progress to be given in the Group’s Trading Statement on 15 January 2020.
“Despite today’s announcement, the Board strongly believes that Tullow has good assets and excellent people capable of delivering value for shareholders. We are taking decisive action to restore performance, reduce our cost base and deliver sustainable free cash flow.”
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