Tullow Oil’s nightmare December continued today after shares dropped nearly 11 per cent, a week after the oil explorer lost over £1bn of its market value.
Shares fell to 59.3p, having opened at 67.8p. Last week shares had staged a slow comeback, having initially fallen as low as 39.9p.
The plunge followed the resignation of chief executive Pat McDade, who quit along with exploration director Angus McCoss, after the company cut its production guidance for the coming years.
The Africa-focused firm said that total oil production for 2019 would now be 87,000 barrels per day, down from an earlier forecast of 89,000.
However, next year’s production is predicted to average between 70,000 and 80,000 barrels of oil per day (bopd), while over the next three years it expects an average of 70,000 bopd.
At the beginning of the year management announced that production could hit 100,000 barrels a day in the second half of 2019.
The firm was dealt a double blow in November when problems with its Ghana drilling operations, which led to a reduction in output, were compounded by the discovery of heavy crudes at a significant discovery off the coast of Guyana.
Heavy crudes are often priced at a discount due to the extra refining costs that are required to treat them.
Tullow hopes for free cash flow of about $350m (£265.7m). It assured investors it has liquidity headroom of more than $1bn and no debt maturities approaching imminently.
On Friday analysts at S&P Global Ratings downgraded Tullow’s credit rating to B from B+ after the production guidance cuts.
The financial services firm said Tullow’s credit metrics could remain “volatile” in the short term, and did not rule out lowering its rating further.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said:
“Tullow’s shares have been hit by the combination of target price downgrades by analysts and, more significantly in our opinion, a cut to its credit rating by S&P.
“The recent cut to production guidance has impacted the groups ability to generate cash, and that makes its debt riskier. However, a lower rating will likely mean Tullow has to pay more to borrow.
“The question now is whether Tullow can generate sufficient cash to cover its liabilities in the short term. The firm is now extremely exposed to changes in the oil price and it may hinge on whether we see a bounce or not.
“It’s a case of what happens when a firm is dependent on two major assets – when they break down, as oil fields do, the fallout is substantial. Had the result in Guyana been better it would at least have had the potential to derisk Tullow after its problems in Ghana.”
Last week, Dorothy Thompson, the company’s chair, said: “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.”
Thompson has temporarily been installed as executive chair, as the firm kicks off its search for a new chief executive.