Shares in Tullow Oil plunged to a 16-year low after the company surprised investors by slashing its production forecast, scrapping its dividend and announcing that its chief executive and exploration director had left.
Tullow said Paul McDade was leaving after almost two decades at the London-listed company. He was appointed chief executive in 2017. Angus McCoss, the head of exploration, was also ousted with immediate effect.
The company will be run by the chair, Dorothy Thompson, a former Drax boss, until a new chief executive is found, while Mark MacFarlane, its east Africa chief, becomes chief operating officer.
Thompson said: “The board has been disappointed by the performance of Tullow’s business and now needs time to complete its thorough review of operations.”
Tullow was the biggest faller on the FTSE 250 after shares crashed 72% to 70.1p – its lowest close since December 2003 and wiping more than £1bn off the value of the company. It was founded in 1985 in Tullow, near Dublin, by the Irish businessman Aidan Heavey and was promoted to the FTSE 100 in 2007.
Its shares reached a peak of £13.70 in 2012 but the oil market collapse led to the debt-laden firm’s ejection from the blue-chip index three years later. Heavey left last year and recently announced a new oil venture, Boru Energy.
Tullow has been plagued by problems in Ghana, Uganda and Kenya. Demand for Jubilee field gas from the Ghana National Gas Company has been much lower than expected and Tullow has run into mechanical problems on two new wells at one of its other fields. It also warned last month that two discoveries off the Guyana coast contained heavy crude oil, which cast doubts on their commercial viability.
The latest blow for Tullow shareholders emerged only weeks after its share price crashed to two-year lows after an update on two significant projects in Guyana. The company told investors they contained low quality, “heavy oil” which raised fears that the projects would be more expensive – and less lucrative – than investors had hoped.
It expects to produce between 70,000 and 80,000 barrels of oil a day next year, down from about 87,000 barrels this year. From 2021-23 it expects production to remain at 70,000 barrels a day.
The company has suspended its dividend and said it would be open to offers to acquire it “at the proper value”.
Russ Mould, the investment director of stockbroker AJ Bell, described the production downgrade as a “real disaster”. He added: “You know an update is bad when it is accompanied by the immediate departure of senior management. The news represents a continuation of the problems which have dogged the company ever since its share price peaked more than seven years ago.
“The company’s skillset was in exploration – it enjoyed notable discoveries in Ghana and Uganda in the mid-noughties – and it has clearly found the transition to being more of a producer and developer of hydrocarbons more difficult.”
Mould noted that Tullow had debts of nearly $3bn (£2.3bn).
Nadeem Umar, an analyst at Hargreaves Landsdown, said the debt pile is “higher than we’d like” and the blow to the Guyana fields dashes hopes of a secure source of future income.
He warned that Tullow may face further difficult days if oil market prices sink.
Tullow has locked-in oil prices of $56 a barrel for its TEN and Jubilee fields in Ghana. If oil market prices are higher than this level the company will rake in higher profits but if the market falls it could tighten the squeeze on its cashflows further.
“That means the onus is on these fields to produce enough profit to shift the substantial debts, fund future projects and hopefully reinstate a dividend,” Umar said.
The Ghanaian fields will make up 70% of Tullow’s production next year but are also eyed cautiously by investors. Both have suffered technical difficulties in the past; including technical problems at its Jubilee field and delays at the TEN offshore field.
Tullow expects to update investors on its plans in February.
Source: The Guardian