Tullow Cuts Capex. Cash Flow to Slide

Shadia Nasralla
Thursday, March 12, 2020

Africa-focused Tullow Oil expects its free cash flow to slide to $50 million to $75 million this year at an oil price of $50 a barrel, and to break even at prices of $45 a barrel, it said on Thursday. 

Free cash flow at the group had already fallen last year to $355 million from $411 million in 2018. 

Tullow said it would slash its investment budget by about a third to $350 million this year and cut its exploration spending, historically the focus of the group, by almost half to $75 million. That will be weighted towards its fields in Ghana. 

The firm, which is also shrinking its workforce by about a third, said it has drawn up a final shortlist of candidates to replace Paul McDade, who resigned in December. 

Tullow, whose shares have shed around 90% of their value in the past six months, said it aims to cut its general and administrative budget by around $200 million over the next three years. Its debt stood at around $2.8 billion at the end of last year, compared with a market capitalization of $305 million as of Wednesday. 

The company, which has put part of its Kenyan assets on the market, aims to raise $1 billion in asset sales. 

The group last month said it planned to cut a third of its staff after the firm was hit by weak output in Ghana, delays in East Africa and lower-than-hoped-for oil quality in Guyana. 

Oil prices have slumped in recent weeks due to the expected impact of the coronavirus on global growth, and the collapse of an agreement to cut oil output by major producers. Brent crude was trading at just below $34 a barrel early on Thursday, down from above $70 at its January highs. 

Tullow has hedged around 45,000 barrels a day of its 2020 production with a floor price of $57.28 a barrel, and around 22,000 bpd of its 2021 output at a floor of $52.78 a barrel. 

"The group expects debt capacity to be confirmed at circa $1.9 billion," it said. 

"(Tullow) has determined that near-term oil price volatility has no material impact on debt capacity due to the significant downside protection provided by its hedge portfolio and the reduction in tax liabilities at lower oil prices." 

(Reporting by Shadia Nasralla; Editing by Jan Harvey)

Categories: Finance Industry News Production Africa

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