Tullow to book $1.5bn writedown on oil price outlook and reserves

Storage tanks at Tullow Oil’s Ngamia site in Lokichar, Kenya. Tullow’s shares have fallen 70 percent in the fourth quarter of 2019. (Reuters)
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Updated 15 January 2020

Tullow to book $1.5bn writedown on oil price outlook and reserves

  • The reduction in oil price assumptions brings Tullow more in line with peers’ expectations

LONDON: Tullow Oil is to take a $1.5 billion 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 percent in the fourth quarter of 2019. 

The reduction in oil price 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 license costs due to the levels of planned future activity or license exits.

“Tullow expects to report pretax impairments and exploration writeoffs of (around) $1.5 billion,” the company said.

Tullow, a partner of French oil group Total 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 organizational 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.”


Demand issues ‘to overshadow OPEC+ supply next year’

Updated 29 October 2020

Demand issues ‘to overshadow OPEC+ supply next year’

  • Libya's rising production adding to pressure on oil markets

DUBAI: The Organization of the Petroleum Exporting Countries (OPEC) and its allies will have to contend with a “lot of demand issues” before raising supply in January 2021, given throughput cuts by oil refiners, the head of Saudi Aramco’s trading arm said.
OPEC and its allies plan to raise production by 2 million barrels per day (bpd) from January after record output cuts this year as the coronavirus pandemic hammered demand, taking overall reductions to about 5.7 million bpd. 

“We see stress in refining margins and see a lot of refineries either cutting their refining capacity to 50-60% or a lot of refineries closing,” Ibrahim Al-Buainain said an interview with Gulf Intelligence released on Wednesday.

“I don’t think the (refining) business is sustainable at these rates (refining margins).”

However, Chinese oil demand is likely to remain solid through the fourth quarter and into 2021 as its economy grows while the rest of the world is in negative territory, he added.

Among the uncertainties facing the oil market are rising Libyan output on the supply side and a second wave of global COVID-19 infections, especially in Europe, on the demand side, Al-Buainain said.

Complicating efforts by other OPEC members and allies to curb output, Libyan production is expected to rebound to 1 million bpd in the coming weeks.

Oil prices, meanwhile, fell over 4 percent on Wednesday as surging coronavirus infections in the US and Europe are leading to renewed lockdowns, fanning fears that the unsteady economic recovery will deteriorate.

“Crude oil is under pressure from the increase in COVID-19 cases, especially in Europe,” said Robert Yawger, director of energy futures at Mizuho in New York.

Brent futures fell $1.91, or 4.6 percent, to $39.29 a barrel, while US West Texas Intermediate crude fell $2.05, or 5.2 percent, to $37.52.

Earlier in the day Brent traded to its lowest since Oct. 2 and WTI its lowest since Oct. 5.

Futures pared losses somewhat after the US Energy Information Administration (EIA) said a bigger-than-expected 4.3 million barrels of crude oil was put into storage last week, but slightly less than industry data late Tuesday which showed a 4.6 million-barrel build.

However, crude production surged to its highest since July at 11.1 million barrels per day in a record weekly build of 1.2 million bpd, the data showed.

Gasoline demand has also been weak overall, down 10 percent from the four-week average a year ago. US consumption is recovering slowly, especially as millions of people restrict leisure travel with cases surging nationwide.