Tullow prepares to cut spending further as low oil prices bite


Tullow Oil Plc, a U.K. explorer focused on Africa, said it’s ready to make further cuts to capital spending as it recalibrates its operations for a period of low oil prices.

Capital spending can be reduced to about $300 million annually from next year if prices stay low, the London-based company said on Wednesday after reporting a net loss of $1.03 billion in 2015.

Tullow reiterated its intention to cut spending to about $900 million this year from an original projection of $1.1 billion.

“That won’t have much impact on production in the short term,” Chief Financial Officer Ian Springett said by phone.

“We are positioned very well to grow the business beyond that when the market improves.”

Tullow’s loss comes after the company took one-time charges of $1.34 billion, including a $749 million write-off on exploration costs and an impairment of $406 million.

Tullow has joined other producers in cutting spending and jobs to weather a prolonged decline in prices amid a global oversupply.

Tullow fell as much as 8.2 percent and was down 7.4 percent to 149.6 pence as of 10:49 a.m. in London trading.

The stock has lost almost two-thirds of its value in the past year.

The ability to cut capital expenditure to $300 million is “positive,” according to Dragan Trajkov, a London-based analyst at Stifel Nicolaus Europe Ltd., who said the full-year results were “largely neutral.”

Tullow’s board has recommended no dividends be paid once again this year as it aims to retain as much cash as possible.

“What shareholders want in times like these is financial flexibility,” Tullow Chief Executive Officer Aidan Heavey said by phone. “It’s the proper thing to do.”

Heavey said the company will resume dividend payouts when certainty regarding oil prices returns and net debt is reduced.

Tullow paid a dividend of 4 pence a share in 2014, when it posted a loss of $1.56 billion.

Tullow isn’t the only oil explorer and producer to scrap payouts.

Anadarko Petroleum Corp. slashed its dividend by 81 percent yesterday, the first such cut in its history.

CFO Springett said talks with banks regarding a lending facility secured by undeveloped reserves are going “well” even though it may be less than the $3.7 billion that Tullow announced in October.

Any reduction the facility would be “immaterial,” he said. The next re-determination in the twice-yearly talks is due next month.


Source : bloomberg