Tullow Oil's new strategy focuses on squeezing West African oilfields

By Shadia Nasralla
Wed, 25 November 2020

LONDON (Reuters) - Tullow Oil will commit 90% of its investments in coming years on its existing oilfields offshore West Africa and move exploration activities to the back burner as it seeks to reduce its debt burden.

Tullow, which was founded in the 1980s to tap in to African oil and gas, has historically focused on exploring for new oil discoveries, but the oil price collapse this year has forced the entire oil and gas sector to slash its exploration budgets.

As part of a Capital Markets Day under new Chief Executive Rahul Dhir, Tullow, with a market capitalisation of $560 million as of Tuesday and $2.4 billion in net debt, said it expected to generate $7 billion of operating cash flow over the next 10 years.

"The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations," Dhir said.

In a statement before a presentation due at 0900 GMT, Tullow said it had produced only 14% of the 2.9 billion barrels in place in its Ghanaian fields and that drilling there would start in the second quarter.

It expects to invest around $2.7 billion over the next 10 years and make $4 billion in cash flow to pay down debt and distribute shareholder returns at oil prices of $45 a barrel in 2021 and $55 from 2022.

In September, Tullow, which pays no dividend, raised the prospect of a potential cash crunch at a debt covenant test in January 2021. Then, it said it was looking at options like refinancing convertible bonds due next year or the senior notes due in 2022, amending its reserve-based lending (RBL) facility or raising cash from banks or other investors by January.

Since 2019, Tullow suffered a series of missed production targets, leading its previous chief executive to step down late last year.

It then set itself a $1 billion divestment target, but on Wednesday it said it saw less need for further divestments after the sale of its stake in yet-to-be developed Ugandan onshore oilfields to Total for $575 million and cost cuts.

As for its oilfields offshore Guyana, adjacent to the Stabroek field where Exxon Mobil Corp has discovered some 8 billion barrels of oil equivalent but where it had some disappointing well results, Tullow said it would focus on better understanding the basin.

Graphic: Tullow Oil free cash flow - 

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Graphic: Tullow Oil net debt -

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(This story corrects net debt figure to $2.4 billion to reflect recent Uganda deal, paragraph 3)

(Reporting by Shadia Nasralla in London, Editing by Matthew Lewis)