Wednesday 28 September 2016

Tullow Oil upbeat but expects profits to halve to €300m

Paul O'Donoghue

Published 02/07/2015 | 02:30

Tullow boss Aidan Heavey
Tullow boss Aidan Heavey

Irish-listed oil explorer Tullow Oil was optimistic about its half-year performance in a trading update issued yesterday, despite reporting that profits are to more than halve to $300m (€270m).

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In a statement, the company said it expects to report revenues of $800m in the six months to the end of June, down from $1.3bn for the same period last year. Gross profit was $300m, down from $700m at the mid-point of 2014.

However, the firm has raised its full-year production guidance after its flagship Jubilee offshore Ghana field produced more than expected.

The company, which last month agreed to pay $250m to settle a tax dispute with the Ugandan government, now expects to produce between 72,000 and 78,000 barrels per day (bpd) this year, up from the previously expected 69,000-77,000 bpd.

Chief executive Aidan Heavey said: "Our major oil producing assets in West Africa have performed strongly and we have upgraded our 2015 full year production forecast accordingly.

"In East Africa, we are making steady progress towards project sanction with good appraisal and test results from our wells in Northern Kenya and strong support from the governments of Kenya and Uganda." The upgrade, which boosted Tullow's share price by up to 5.4pc in early trading yesterday, helps to relieve some of the pressure on a firm hit hard by the drop in oil prices and poor exploration results that led to its first pre-tax loss for 15 years in 2014.

Tullow announced at the start of the year that it had been forced to write off $2.3bn in 2014 in relation to unsuccessful exploration work and a number of its assets after the oil price rout.

To shield itself from further unexpected oil price movements, Tullow has increased its forward oil sales. It has hedged 34,500 bpd of production in the second half of the year at an average price of $85.98 per barrel, it said.

The oil company also said that it made a $40m write-off on its exploration assets in the first half of the year.

Tullow has been restructuring and cutting costs to match its operations to lower oil prices. The company said it would book a total of $64m related to its restructuring, compared to no such charge a year before.

Tullow said its TEN oil project in Ghana was on track to deliver first production in mid-2016, an event analysts see as a turning point as years of high investments are expected to start paying off for the company.

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