Ghana problem sends Tullow to nine-year low
Shares in Tullow Oil slumped to their lowest level in nearly a decade yesterday, after the company warned it would have to restrict oil production at its most important field because of a technical problem.
In a stock exchange announcement, the Irish-led FTSE 250 firm said it has a problem with how it stores gas at its Jubilee Field of the coast of Ghana. As a result of that problem, oil production has been "constrained" to 65.000 barrels per day (BOPD).
That announcement sparked a fresh sell-off in Tullow, sending the battered share price down as low as 262.5 pence in London - its lowest level since January 2006.
Companies usually produce natural gas as a by-product of oil production. The gas can either be flared off or stored for sale in the future. As natural gas is very cheap, many firms flare it off but environmental laws are now limiting that practice.
Tullow has a 35.5pc share in the oil field, and operates the discovery.
Tullow said it was having a problem with how gas is compressed at a storage and production ship stationed on the Jubilee Field. Until it is fixed, the company has had to reduce oil production by about a third.
"Tullow has mobilised a team of experts to rectify the fault within the gas compression system and estimates that it will take approximately a further three weeks to reinstate gas export and full oil production," the firm said.
Analysts immediately turned to whether Tullow would have to cut its production forecasts when it issues its half-year results at the end of this month.
Tullow had been guiding an average production of 103,000 BOPD in 2015, but Davy Stockbrokers' Caren Crowley said that may now turn out to be closer to 100,000.
"The impact of constrained oil production for a period of a month and half implies that Jubilee's oil production in 2015 could average 100,000 BOPD, down from recent guidance of 103,000 BOPD.
The impact on full year 2015 net debt forecast is $15 to $20m, assuming the cost of repairs is covered by warranties and/or insurance," she said. Goodbody's Gerry Hennigan was more pessimistic on the news, warning that "while likely temporary in nature any disruption to supply from Jubilee is a concern in the context that production from Ghana is forecast to be a rising contributor to overall group production".
This is the latest blow for Tullow, which has been badly hit by a succession of exploration wells in South America and elsewhere which failed to produce oil in economically viable quantities.
It has also been hurt by the tumbling oil prices which have already forced the company to lay off staff in its Dublin office.
Tullow ended the day at 267.6 pence in London. The stock is down 64pc in a year.