By Selina Williams
LONDON-- Tullow Oil PLC said Thursday it was making its largest
ever write off of $2.7 billion before tax, another sign of the
impact of plunging oil prices on exploration and production
companies.
The U.K.-listed company known for its discoveries in East and
West Africa, blamed unsuccessful drilling and cheap oil for a $600
million write-off of all its assets, as well as for $1.2 billion
related to ventures that now have no prospect of
commercialization.
The move comes as oil fell to less than $48 a barrel in London
Thursday morning--down more than half since last June. The rout has
posed particularly difficult challenges for smaller exploration and
production companies don't have other parts of their business to
fall back on when prices are low, like the refining arms of major
corporations like BP PLC and Royal Dutch Shell PLC.
Earlier this week, for example, U.K.-listed explorer Premier Oil
PLC wrote down the value of its assets by $300 million on the back
of lower oil prices.
Tullow Chief Executive Aidan Heavey said Thursday that the
company reviewed every single asset in the portfolio before making
its decision.
"[We] wrote virtually everything off that we felt was either not
commercial at $50 a barrel oil or where the [license] terms needed
to be adjusted to make them commercial in the future," he said.
The company's shares were down about 1% Thursday morning.
Westhouse Securities analyst Mark Henderson said Tullow's
"fundamental long-term production/cash flow growth story remains
intact."
For Tullow, which made its name opening up major hydrocarbon
basins in Ghana, Uganda and Kenya, declining oil prices are having
stark consequence on new and old ventures.
For example, the company made a discovery in French Guiana in
2011 that is no longer commercially viable at current oil prices,
it said.
Mr. Heavey said Tullow was further cutting its 2015 exploration
budget by 30% to $200 million. Last year it slashed its budget as
part of cost cuts. In previous years, it had spent around $1
billion a year.
More cost cuts are coming this year, including job cuts,
operating costs and streamlining the business, Mr. Heavey
added.
The company is also reducing capital expenditure for this year
to a maximum of $1.9 billion from $2 billion. Around half of the
capital expenditure will be allocated to the development of
Tweneboa-Enyenra-Ntomme oil fields offshore Ghana, which are due to
come onstream next year.
Tullow said it expects 2014 revenue to be $2.2 billion and
pretax operating cash flow of $1.5 billion, underpinned by strong
performance of its West Africa oil production.
"These results versus the prior year, have been impacted by the
oil price decline and lower gas production following asset sales in
Europe and Asia," the company said in a statement.
Tullow said $500 million of the $2.7 billion total write off
included a loss on disposal mainly relating to the partial sale of
the U.K. Schooner and Ketch gas fields as well as in Uganda.
There could be further difficulties for other oil companies in
the coming weeks as fourth-quarter earnings are reported.
Write to Selina Williams at selina.williams@wsj.com
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