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Tullow CEO departs amid production woes

https://www.chemnet.com   Dec 10,2019 S&P Global Platts
Independent explorer Tullow suffered a blow Monday when its CEO and another board member left the company aftera string of disappointing exploration and production results at its key assets in Ghana.

Tullow said its production performance "has been significantly below expectations" with the Jubilee and TEN fields in Ghana afflicted by technical and operational issues.

Shares took a beating after news of the resignations of CEO Paul McDade and Chief Exploration Officer Angus McCoss, with shares down more than 60% in Monday morning trade in London.

This departures come just three weeks after the firm said its promising oil finds off Guyana were not as valuable as first expected due to the oil being tough-to-produce, viscous heavy crude.

MATERIALLY LOWER PRODUCTION
Production for 2020 will now average 70,000-80,000 b/d, while the outlook for the following three years is expected to average around 70,000 b/d.

This is significantly lower than its previous production expectations, which until recently had been forecast to average more than 100,000 b/d in 2020 and beyond.

"On the Jubilee field, these factors include significantly reduced offtake of gas by the Ghana National Gas Company, which Tullow makes available at no cost, increased water cut on some wells, and lower facility uptime," Tullow said in a statement.

"At Enyenra [one of the TEN fields] mechanical issues on two new wells have limited the well stock available and there is faster-than-anticipated decline on this field."

Tullow has said its reserves guidance is likely to remain broadly flat at year-end 2019, compared with the previous year-end, excluding the impact of 2019 production.

"Reserves base for Jubilee is as robust today as it was yesterday," Executive Vice President Mark MacFarlane said during a call with analysts.

Independent reserves audits show increased oil reserves for Jubilee and Ntomme, also among the TEN fields, but it noted a 30% decrease in reserves at Enyenra.

REVIEW OF FUTURE PLANS
Dorothy Thompson, who has been appointed executive chair on a temporary basis, said the company has not "delivered on its commitments", and the revamped board is now conducting a "thorough review" to find out why this wasn't done.

Thompson said this means there will be a reassessment and review of the company's future investment plans.

"Material errors made in projecting forward production at Tullow," said Thompson. "... [We] have done a lot of work in the last few weeks to make sure these errors are not repeated. We are taking

decisive action to restore performance, reduce our cost base and deliver sustainable free cash flow."

Analysts said the reduced output guidance will have a negative impact on the valuations of Tullow's key assets.

"These numbers, the TEN figures in particular, are also likely to impact sentiment towards partner Kosmos and may have implications for Anadarko buying Total," said analysts at RBC Capital Markets.

Progress at Tullow's projects in East Africa, namely Uganda and Kenya, have been slow recently.

In Uganda, the farm-down of its assets to Total and CNOOC for $900 million have been halted due to a capital gains tax dispute, pushing the final investment decision further back.

Total in September dropped plans to take a FID by the end of the year on whether to develop the Lake Albert oilproject, a month after scrapping a key farm down deal between its partners.

The $900 million deal for the UK's Tullow Oil to sell part of its 33.33% stake in the project to Total and China's CNOOC effectively expired due to long delays over a tax settlement with the government.

Tullow is also planning to sell a stake in its Kenya oil blocks ahead of taking a FID on the development.

The company also suspended its dividend payments but CFO Les Wood said Monday that the company remains financially sound despite the poor production performance.

"Balance sheet should be the number one concern for shareholders, given the risk of a potential equity issue toreduce debt," analysts at investment bank Stifel said in a note.

"Even at the reduced capex level, the free cash flow generation of $150 million guidance is substantially belowthe prior $500 million level."
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