10th Feb 2016 07:47
LONDON (Alliance News) - Tullow Oil PLC on Wednesday reported a narrower pretax loss in 2015 despite reporting a steep drop in revenue due to the fall in oil prices, as the company said it remains focused on reducing costs and getting the TEN development in Ghana producing.
Tullow had already guided last month that its earnings would be considerably lower year-on-year after lower oil prices hampered results, as a fall in net production from Europe offset a rise from its flagship operations in West Africa.
The oil company, which operates in 22 countries with the majority of its oil production coming from assets in West Africa, reported a USD1.29 billion pretax loss from continuing activities in 2015 compared to a USD2.04 billion loss in 2014.
That result came despite a steep drop in revenue to USD1.60 billion from USD2.21 billion, yielding a gross profit of USD591.3 million compared to USD1.09 billion last year - in line with Tullow's guidance last month.
Pretax operating cashflow was a smidgen below Tullow's guidance provided last month, totalling USD967.0 million from USD1.54 billion in 2014.
The pretax loss narrowed mainly as a result of fewer impairments and write-offs totalling USD1.15 billion compared to USD2.24 billion last year.
Net debt at the end of 2015 stood at USD4.00 billion, a large rise from only USD3.10 billion at the end of 2014, but Tullow still has USD1.90 billion of headroom. Importantly, the oil company has began discussions with its banks about the March 2016 re-determination of its debt.
With Tullow already releasing a glimpse into its results last month, attention was on the company's spending in the near term and on the TEN development in Ghana which is expected to begin producing this year.
Tullow stuck to its guidance to have a USD1.10 billion capital expenditure budget in 2016, but said this could fall to USD900.0 million. Importantly, with TEN almost finished, the company believes capital expenditure could be as low as USD300.0 million per year from 2017 onwards.
Tullow spent USD1.70 billion in capital expenditure in 2015.
Tullow is also on track to deliver USD500.0 million of cost savings through job cuts, with staffing down 37% year-on-year.
Net production from West Africa averaged 66,600 barrels of oil per day in 2015 after rising from 63,400 barrels a day a year earlier, and sat comfortably within the company's guidance range of 63,000 to 68,000 barrels set at the end of 2014.
However, Tullow's European assets reported a dramatic fall to 6,800 barrels of oil equivalent per day in 2015 from 11,800 barrels last year - offsetting the production rise in West Africa.
The TEN project in Ghana is 85% complete and on track to begin producing oil between July and August.
In 2016, production from West Africa is expected to rise to between 73,000 and 80,000 barrels of oil equivalent per day, mainly driven by TEN.
Tullow's realised post-hedge oil price in 2015 averaged USD68 a barrel, significantly down from USD97.5 per barrel in 2014, as the company's hedging programme provided a slight cushion to the hefty impact of lower oil prices in the year.
Tullow has continued hedging, with 52% of its 2016 production to be sold at USD75 per barrel - considerably higher than current market prices - with further "material hedging" in place for 2017. Tullow said the mark-to-market value of its hedging programme at the end of January was around USD668.0 million.
"Our challenge in 2016 is to be equally robust in responding to the uncertainties that remain in the sector. In the year ahead, we have three key priorities: ensuring continued low cost production from West Africa - including the start-up of production from TEN between July and August 2016; driving further reductions in operating costs and capital expenditure; and focusing on deleveraging the balance sheet through free cash flow generation and strategic portfolio management," said Tullow Chief Executive Aidan Heavey.
"As we look ahead, we have a portfolio of world class, low cost oil assets which will produce around 100,000 barrels of oil a day in 2017 and a major position in one of the world's newest, low cost, oil provinces in East Africa, both enabling us to create substantial value," he added.
By Joshua Warner; [email protected]; @JoshAlliance
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