Tullow Oil sees $600m H1 impairment along with rise in revenue, profits

Africa-focused Tullow Oil said it expected to book a $600m pre-tax half year impairment due to the weaker oil price but expected a rise in revenues and gross profits.

In a trading update, the company said revenue for the period was expected to be $800m, up from $500m in 2016 with gross profit up to $300m from $200m.

The group's capex guidance for the year has been revised from to $400m from $500m, reflecting a revision to prior year accruals in Ghana and lower forecast expenditure across Tullow's portfolio.

Deferred consideration from the Uganda farm-down, once completed, would further reduce the overall Group capex for 2017 to around $300m, Tullow added.

First half West Africa oil production had performed in line with guidance, and was expected to average 81,400 bopd including production-equivalent payments received under Tullow's Business Interruption insurance policy for the Jubilee field.

In Europe, half year net production is expected to average 5,600 boepd.

West Africa working interest oil production full year guidance of between 78,000 and 85,000 bopd for 2017, including production-equivalent insurance payments, remained unchanged. Europe full year gas production guidance for 2017 is now expected to average between 5,500 and 6,000 boepd, Tullow said.

New chief executive Paul McDade said Tullow continued to make good progress “despite tough market conditions”.

The company in April went to shareholders for $750m in cash to cut its gearing. End-June net debt was expected to be cut by $950m to $3.8bn after the rights issue and and cash flow generated from operations, “demonstrating ongoing delivery of organic deleveraging”.

McDade said the rights issue and free cash flow “from our low cost, producing assets have resulted in a significant reduction in our debt and provided the group with greater financial and operational flexibility”.

“Since I became CEO in April, I have reviewed our medium-term plans and remain satisfied that we are making the right investment decisions with regard to our producing, development and exploration portfolio,” he said.

“Financial discipline and efficient capital allocation will be a key focus of my tenure as CEO as we seek to deleverage the Company and return to growth even at low oil prices."