Tullow Trims Annual Target for West African Oil Output

  • Company now sees 2015 volumes from region at up to 67,000 b/d
  • Oil producer also narrows guidance for 2016 capital spending

Tullow Oil Plc cut the upper end of its 2015 forecast for West African oil output after being unable to account for production at a field in Gabon during the first half.

Volumes from West Africa will be 66,000 to 67,000 barrels of oil equivalent a day this year, the London-based company said Wednesday in a statement. That compares with guidance for as much as 70,000 barrels a day in July.

Tullow couldn’t record production from the Onal field in Gabon while it was in talks with the government over its license in the first half, Chief Executive Officer Aidan Heavey said by phone. The company’s previous guidance had assumed production from the deposit since the start of the year.

The shares fell as much as 7.5 percent to 197.50 pence in London, a one-week low. They traded at 199.8 pence as of 12:50 p.m. local time, extending their decline this year to 51 percent.

Ghana Project

Tullow’s Tweneboa-Enyenra-Ntomme -- or TEN -- project off Ghana is on schedule to deliver its first oil toward the middle of next year, the company said in the statement. TEN has driven up the producer’s net debt, which it expects to reach about $4.2 billion by the end of 2015 from $3.6 billion in the first half.

By mid-2016 “our cash flow will be in excess of our expenditure so we can start to take down our debt,” Heavey said.

Tullow, which has made some of Africa’s largest oil discoveries in the past 10 years, expects capital spending of $1.2 billion in 2016, compared with a previous forecast of as much as $1.4 billion. As much as 20 percent of that investment will go toward exploration, Chief Financial Officer Ian Springett said by phone.

The drop in planned expenditure “demonstrates management’s rigorous focus on limiting discretionary spending and working to minimize further strain on its balance sheet,” James Hosie, an analyst at Barclays Plc in London, wrote in a note. Tullow was downgraded to B+ from BB- last month by Standard & Poor’s, which cited debt concerns.

Uganda, Kenya

Tullow also operates in East Africa, where it has found oil in Uganda and Kenya. Oil-industry development has slowed in the region over the past year as slumping energy prices forced companies to cut costs and trim budgets, while indecision on an export pipeline has also stymied progress.

The government of Uganda recently retreated from an August agreement to build a pipeline through Kenya and said last month it’s looking at an alternative route via Tanzania. The Kenyan link makes more economic sense, according to Heavey, who said “I can’t see how one in Tanzania would be as cost-effective.”

Partner Africa Oil Corp. also said this week that the Tanzanian pipeline wouldn’t be commercially viable.

(Corrects S&P rating in eighth paragraph.)
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