Tullow oil identifies further cost savings

Tullow Oil has identified further cost savings of about $85 million (€78 million) while its lenders have approved its credit facility with a debt capacity of $1.9 billion.

The oil explorer with licences across Africa and South America said it has taken further actions to reduce its planned capital expenditure for this year by about 30 per cent compared to 2019. After reviewing its planned activity, it identified more savings and is targeting capital expenditure of $300 million, down from $350 million, and decommissioning expenditure of about $65 million, down from $100 million.

The Irish-founded explorer said the savings were identified through the deferral of activities across its portfolio.

In an update to the stock market, the company also said it completed its twice yearly redetermination of a credit facility, with $1.9 billion of debt capacity approved by its lenders.

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As a result, Tullow had about $700 million of undrawn facilities and free cash at the beginning of the second quarter.

Tullow Oil came under pressure towards the end of last year with its shares plunging to a 20-year low after it cut it oil production forecasts, cut its dividend and announced that its former chief executive and exploration director had quit the company. Since then it reported that it had found less oil than expected after drilling an off-shore well in Guyana.

Hedging

But the ongoing troubles in oil markets have been mitigated by the company’s hedging strategy, it said. Tullow has 60 per cent of its sales revenue for this year hedged with a price floor of $57 per barrel and 40 per cent of its sales revenue for 2021 hedged with a price floor of $53 per barrel. In January and February the company received about $62 per barrel for its oil. It expects hedging receipts of $30 million for March.

The London and Dublin-listed company also updated the market on its response to the Covid-19 pandemic, noting that its production operations in west Africa have not yet been affected by any shutdowns. It has put in place plans in the event that a case of Covid-19 is detected offshore.

“Tullow is responding well to the challenges presented by the Coronavirus pandemic with strong controls and processes in place to allow the business to operate as close to normal as possible in spite of these difficult times,” said Les Wood, the company’s chief financial officer.