Tullow’s founder Aidan Heavey
Tullow Oil’s chief executive Aidan Heavey said the group is nearing the end of a cycle of writing off billions of dollars of prior exploration costs as he prepares to hand over the reins this year to his chief operating officer.
The oil and gas group wrote off $723 million (€678.7 million) of exploration expenses last year, including a charge incurred against a Ugandan project in which it sold a stake this year, bringing total such charges to $4 billion over the past four years. Goodwill impairments rose by 200 per cent to $164 million, mainly tied to its ongoing sale of Norwegian assets.
“I don’t think there’s anything left [to write off],” Mr Heavey told The Irish Times, after the oil group reported a pretax loss of $597 million (€560 million) last year as a result of the write-offs and impairments.
Mr Heavey is preparing to step down as chief executive in April to become chairman for two years as the exploration group promotes chief operating officer, Paul McDade, to the top executive role. The changeover, signalled last month, follows an eventful six months, which saw the company’s TEN project off Ghana begin to pump oil while it sold most of its stake in a Ugandan oil project for a total consideration $900 million. This will ease its exploration costs in the coming years as it concentrates on cutting its debt burden.
The group’s share price has also surged by more than 40 per cent in the past 12 months following a rebound in oil prices, mainly as a result of the Organisation of the Petroleum Exporting Countries (Opec), led by Saudi Arabia, striking a deal for the first time in 15 years with non-Opec members, including Russia, in December to scale back the world’s oil supply.
On the negative front, Tullow’s flagship Jubilee project, also off Ghana, suffered technical issues on its floating production, storage and off-loading vessel during the year.
Tullow Oil ended 2016 with net debt of $4.8 billion and free cash of $1 billion.
The company extended its corporate facility on Tuesday by a further year to April 2019, albeit with commitments reducing from $800 million in April of this year to $400 million in October 2018.
Tullow is working on refinancing the larger $3.3 billion facility based on its oil reserves in 2017.
Mr Heavey said that talks on renegotiating the so-called reserve-based lending (RBL) facility will begin in April. He said that the “strong appetite” among banks involved in extending the corporate facility bodes well for the RBL refinancing as there is a large overlap in lenders involved in both.
“I don’t think we’ll have any real issues in refinancing the RBL,” Mr Heavey said. “All the big things are behind us now we’ve got TEN onstream, Jubilee is being fixed and the Uganda farm-out is done. All the things we said we’d do, we did.”
The Ugandan deal, announced last month, involves Tullow selling a 21.6 per cent stake in the Lake Albert Development Project, to French group Total for a total consideration of $900 million.While most of the accord is comprised of deferred payments, it eases the Irish company’s capital expenditure demands and leaves it with a remaining stake of 11.8 per cent.
Tullow booked an exploration write-off of $330.4 million against the stake as part of the transaction.
The earnings announcement on Wednesday provided no real update for the market on Tullow’s operations, with the group having briefed investors last month as it announced its leadership change plans.
Analysts have been largely disappointed by the group’s forecast that the field will only produce 50,000 barrels per day in 2017, as an ongoing border dispute between Ghana and neighbouring Ivory Coast affects its ability to drill new wells.
This may be resolved later this year by an international sea tribunal, with hearings on the case currently taking place.