Wednesday 9 September 2020 8:17 am

Tullow Oil falls to $1.3bn loss after massive oil price writedown

Tullow Oil fell to a $1.3bn loss in the first half of the year after it was forced to write down $1.4bn due to a lowering of its price outlook.

With a mounting debt pile, the oil exploratory firm said that it was in the process of evaluating refinancing options, with a capital markets day to be held later this year.

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Shares in Tullow Oil plummeted 20 per cent as markets opened this morning.

The figures

As a result of the one-off charge, which was announced back in January, Tullow swung into the red from a $103m profit last year.

The London-listed company said that production volumes over the first half averaged 77,700, in line with its expectations, despite the historic volatility in the global oil market due to coronavirus.

It reported revenue of $731m, down from $872m in the same period last year, a 16 per cent decline year on year.

Tullow’s net debt also hit $3bn, with gearing now at 3.0x.

Why it’s interesting

Even before the coronavirus pandemic caused a near total collapse in demand for oil, Tullow was up against it after a year in which its market capitalization shrank nearly 90 per cent.

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After a $1.7bn loss last year, the firm said it would cut a third of its staff, while former chief executive Paul McDade left last November due to the poor performance.

Since July, the firm has been run by former Delonex boss Rahul Dhir, and is targeting $1bn in portfolio sales in order to raise cash.

The first of these deals will see French energy giant Total pay $575m for Tullow’s Ugandan assets. 

However, despite the divestments, and a cost cutting regime which will see the firm save $350 million over three years, Tullow today warned that it could be faced with a cash shortfall.

“Cash flow projections forecast a potential liquidity shortfall during the 18-month period relevant to the liquidity forecast test in respect of the January 2021 RBL re-determination due to the maturity of the $650m Senior Notes due in April 2022”, it said in a statement.

The firm added that it was looking at other ways of raising cash. “Evaluation of various refinancing alternatives with respect to the group’s capital structure is ongoing in parallel”, it said in a statement.

What Tullow said

Chief executive Rahul Dhir said: “Despite the very tough conditions in the first half of this year, we have successfully delivered reliable production and major, sustainable reductions to our cost base. We are also close to completing the important sale of our interests in Uganda. 

Read more: Oil prices fall to lowest levels since July amid signs of stalling demand

“The quality of Tullow’s assets remains robust. Since my arrival as CEO, we have been developing new plans for our business, with the support of our Joint Venture Partners and expert advisors. 

“These plans will deliver enhanced value from our assets to benefit all our stakeholders including our host countries and investors.”