Business Irish

Thursday 19 September 2019

McDade balancing risk and reward at Tullow Oil

Tullow Oil CEO Paul McDade
Tullow Oil CEO Paul McDade

Paul Burkhardt

THE fortunes of Paul McDade and Tullow Oil have mirrored each other for almost three decades. Drawn to the industry in the 1980s as a way to see life outside his native Scotland, Mr McDade moved through the Middle East, South America and Southeast Asia.

At the turn of the century, just as a promising career was shaping up at Canadian oil company Talisman, a different opportunity emerged.

“I’ve met this Irish guy who’s trying to convince me to come to London and start with the company,” Mr McDade said at the time to his wife. It was a risky leap from a well-established producer to a near-startup with uncertain prospects and few staff.

“How many people?” Mr McDade’s wife asked. “Well, there’s no one there yet,” he replied.

The Irishman was Aidan Heavey, who named Tullow after the Co Carlow town.

He’d started with the development of a small gas project in Senegal in 1986, before acquiring North Sea assets over the next couple of years.

Over the next decade the company remained a modest driller and when Mr McDade jumped on board in 2001 Tullow was just about starting to spread across Africa.

One word defined Tullow, Mr Heavey and Mr McDade in those early days – risk. And it certainly paid off. Over the next few years they unlocked reserves in Ghana and Uganda, becoming one of the continent’s top explorers with a reputation for opening up new frontiers.

Yet, for Mr McDade, having taken the helm at Tullow last year, the keywords have now changed to discipline and restraint. Acquisitions and large oil discoveries pushed the company’s market capitalisation from about £300m (€339m) in 2003 to more than £14bn (€15.8bn) in 2012.

Since then it’s slumped to about £2.5bn (€2.8bn).

Oil’s downturn, which started in 2014, changed the company, forcing it to cut spending and reconsider its risk-taking ways. In an attempt to stem declining profits and a rapidly falling share price, Tullow reorganised and Mr Heavey departed earlier this summer. Mr McDade took over.

One of his biggest challenges will be to emerge not just from Mr Heavey’s dominating shadow on the company, but to convince investors and analysts he’s the right man for the job. He will have to draw on his vast experience of working around the world. Mr McDade was in Kuwait when Saddam Hussein invaded the country in 1990. “That wasn’t good timing,” he said.

The experience and subsequent evacuation from the war-torn nation didn’t faze him. Among Mr McDade’s first jobs at Tullow was to manage the money-making North Sea assets, which funded Mr Heavey’s risky exploration elsewhere.

He was promoted to chief operating officer in 2004, and asked with bringing together the company’s assets worldwide, including Energy Africa, which Tullow bought that year.

In the years that followed, Mr McDade ran the day-today operations and Mr Heavey doubled down on exploration.

Tullow had a string of successes in Uganda in 2006, a nation with no previous proven oil or gas reserves.

The following year it made its biggest ever discovery – the Jubilee field in Ghana. It discovered oil in Kenya in 2012.

“I don’t think even Aidan thought we would get to the dizzy heights of sitting there at the first oil ceremony in Ghana,” Mr McDade said.

The company’s profit jumped more than nine times to a record of about $650m in 2011 compared with the previous year as oil prices stayed high.

Crude’s biggest slump in a generation in 2014 caught most companies around the Balancing act : The slump in oil prices in 2014 forced Tullow and new CEO Paul McDade to re-evaluate its risk-taking strategies world by surprise. Tullow reported losses in each of the four years from 2014 to 2017 and total debt surged. Trouble piled up. The company is among the worst performers in the 22-member Stoxx Europe 600 Oil & Gas Index this year.

“Tullow’s calling card is exploration, but it hasn’t been able to repeat the success of the Jubilee field,” Jefferies analyst Mark Wilson wrote in a report last month.

While Kosmos Energy and Cairn Energy have similar operating models with producing assets balancing the risky hunt for new discoveries, Tullow is still seen to be straddling priorities.

A priority since the oil price slump has been to fix the balance sheet, Mr McDade said.

That meant resolving production issues in Ghana, selling down in Uganda and prioritising development in Kenya.

Despite the reticence on exploration, the company continues to look forward to a field in Guyana, in which it holds a 60pc stake.

Tullow is managing expectations better.

Having won over at least some analysts, Mr McDade’s approach could help him move Tullow on from Mr Heavey’s legacy by tempering risks and meeting targets “which, I suppose, is a lot more of a focus for me than Aidan,” he said. “We will do frontier exploration, but we’ll do it in a manner where we take a certain amount of funds and we stretch them.


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