Tullow Oil focuses on W.africa with new strategy

LONDON: Britain’s Tullow Oil will commit 90% of its investments in coming years on its producing offshore oilfields in West Africa and put exploration on the back burner to reduce debt.

Tullow, which was set up in the 1980s produce oil and gas in Africa, has historically focused on exploring for new discoveries but the oil price collapse this year has forced the entire oil and gas industry to slash its exploration budget.

Tullow, with a market capitalisation of $560 million as of Tuesday and $2.4 billion in net debt, said it expected to generate $7 billion of operating cash flow in the next 10 years.

Its shares climbed as much as 9% on Wednesday, hiting a five-month high, before giving up gains. The stock is down more than 40% so far this year.

“The plan focuses our capital on a deep porfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations,” Rahul Dhir, the new chief executive, said in a statement on Tullow’s Capital Markets Day.

Tullow said it had produced only 14% of the 2.9 billion barrels in place in its Ghanaian fields and drilling there would start in the second quarter aiming to expand output in the medium term.

It said it expected to invest around $2.7 billion over the next 10 years and make $4 billion in cash flow to pay down debt and distribute shareholder returns at oil prices of $45 a barrel in 2021 and $55 from 2022.

BMO analyst David Round said that “the scale of cash generation is beter and, assuming it is achievable, would go a long way towards addressing the market’s funding concerns.”