LONDON (Reuters) - Tullow Oil (TLW.L) is to take a $1.5 billion (1.15 billion pounds) writedown after cutting its long-term oil price assumptions by $10 to $65 a barrel, a downgrade to reserves in Ghana and disappointing exploration wells, the company said on Wednesday.
The writedown at Africa-focused Tullow comes after the exit of CEO Paul McDade in December and the scrapping of the group’s dividend after the group failed to meet production targets due to a weak performance at its assets in Ghana.
Tullow’s shares fell 70% in the fourth quarter of 2019. After an initial slump on Wednesday, the shares were up around 4% at 61.60 pence by 0900 GMT.
The reduction in oil price LCOc1 assumptions brings Tullow more in line with peers’ expectations, Chief Financial Officer Les Wood told a conference call.
Tullow said the write-offs included Jethro, Joe and Carapa well costs in Guyana as a result of drilling results and Kenya Block 12A, Mauritania C3, PEL37 Namibia and Jamaica licence costs due to the levels of planned future activity or licence exits.
“Tullow expects to report pretax impairments and exploration writeoffs of (around) $1.5 billion (c. $1.3 billion post tax),” the company said.
Tullow, a partner of French oil group Total (TOTF.PA) in several projects, has forecast that its 2020 output will shrink to a maximum of 80,000 bpd and fall again to around 70,000 bpd in 2021-2023.
Full-year results have been pushed back to March 12 and will include updates on the review of its assets and management structure. Executive Chair Dorothy Thompson told Reuters the announcement of a new CEO might come after that date.
Tullow said after repeated delays to its East African projects, its scheme to truck oil from its Kenyan inland fields to the coast had been suspended due to damaged roads and that there was no breakthrough in Uganda, where it is looking to reduce its stake in its oilfields.
A final investment decision for Kenya is still pencilled in for the end of this year, but that target is “challenging”, Chief Operating Officer Mark MacFarlane said.
JPMorgan analysts said in a note: “Looking forward, alongside the CEO and other organisational changes we anticipate through 2020, we look for greater clarity on realistic timeframes to progress in both Uganda and Kenya, which hold the key to medium term growth potential.”
To shield against oil price fluctuations, Tullow has hedged 45,000 barrels per day (bpd) of its 2020 output with an average floor price of $57.28 a barrel. For next year, it hedged 22,000 bpd at an average floor price of $52.80 a barrel.
In the fourth quarter Tullow’s shares were hit by production downgrades in Ghana, the oil quality found in a well in the Orinduik block offshore Guyana and the disappointing size of a well in its Guyanese Kanuku block.
Reporting by Shadia Nasralla, editing by Louise Heavens and Jane Merriman