Prime News Ghana

Tullow Oil banks hope on hedging program to escape impact of coronavirus

By Mutala Yakubu
Shares
facebook sharing button Share
twitter sharing button Tweet
email sharing button Email
sharethis sharing button Share

Troubled oil producer, Tullow Oil plc, is in a hurry to forget 2019.

It was a year that the company showed loads of promise and even much greater disappointment, which culminated in the departure of its CEO, Paul McDade and Head of Exploration, Angus Mcoss.

While Tullow had run into problems with the Ugandan tax authorities in its bid to sell off its assets in that country, the announced discovery in Guyana gave the company some hope. Little did investors know that the discovery was not what they expected.

The South American discovery was heavy crude oil and the company faced accusation of deliberately conceding this to drive up their share price. Light crude is mostly preferred to heavy crude as it costs less to refine compared to the former.

Investors felt hard done by that, and it was not surprising to see Mr. McDade end his nearly two-decade stint with the Anglo-Saxon oil company.

READ ALSO: OMCs to reduce fuel prices on Monday

Aside from the Guyana challenges, the company’s cash cow Ghana, was having its own difficulties in all the two fields – Jubilee and TEN. Given all these cascading problems, production targets had to be revised and staff had to be sent home to reduce the company’s operational costs to keep afloat.

During the announcement of the company’s 2019 financial results, the Chief Finance Officer of Tullow Oil Plc, Les Wood, said the company made a US$1.6 billion loss in the troubled year.

That huge hit had forced the suspension of dividend payment to investors – and led to the restructuring of the company’s operations. Essentially, 35 percent of the company workforce are on their way out.

As the Chief Operating Officer of Mark MacFarlane puts it, the company has been restructured to become extremely efficient using a rather lean structure.

Two offices in Ireland and Cape Town have been shut down. It is expected that some US$200 million will be saved over the next three years from this reorganization.

COVID-19 and Oil Price slump

When the event to announce the financial performance of the company started in London, attendants were seated at least two meters apart. This was a safety precaution in the aftermath of the novel coronavirus pandemic.

The deadly coronavirus is causing all sorts of problems for the world economy with even a recession feared in some economies. There is typically low demand for oil as crude oil prices have plummeted, due to a price war between Saudia Arabia and Russia. But that will be less of a problem for Tullow which had already hedged its oil around US$53 per barrel.

With the company producing a barrel of oil at US$10, it seems the company’s foresight will pay off this year. Nevertheless, the slump could be bad news in the long-run. The company has earmarked US$350 million for capital expenditure for this year.

If prices do not pick up, it would not make any sense to sink that much of money into producing oil which it can not sell to recover its costs.

The company is counting on its safety measures put in place in Ghana to keep the COVID-19 out of its offshore operations. It has no insurance cover for the outbreak, and should it be detected offshore, it could practically spell doom for a company already begging for survival.

Source: Citi Newsroom