--UPDATE ADDS SHARE PRICE AND BROKER COMMENT--
Tullow Oil (LON:TLW) shares dropped 5% after it promised further cutbacks, with capital spending planned to reduce by around 36% in 2016.
The oil firm said that capital expenditure (capex) for full year 2015 would amount to around US$1.9bn and next year it was expected to drop to US$1.2bn.
It comes as the major TEN oilfield development nears completion (it is now 75% done). The project is currently said to be on-schedule and on-budget for ‘first oil’ in mid-2016.
From current operations Tullow’s production for the year-to-date is on track, and the company said it now expects full year net production to average between 66,000 and 67,000 barrels of oil per day (bopd).
The flagship Jubilee field is expected to produce 100,000 bopd gross for the year, in line with prior guidance.
Tullow said it expects pre-tax operating cash flow of US$1bn for 2015, and it highlighted that it sees US$500mln of savings to be made over the next three years.
"Whilst 2015 has been a difficult year across the industry, we have taken appropriate steps within our business to meet the challenges presented by lower oil prices,” said chief executive Aidan Heavey.
“We have focused our resources on our West African oil assets which, by 2017 with TEN on stream, will be producing around 100,000 bopd net to Tullow.
“We expect to begin deleveraging our balance sheet with production from TEN and this project remains on time and on budget for mid-2016.”
In East Africa, where the company has assets in Kenya and Uganda, development plans in east Africa are progressing towards final investment decisions which are anticipated in 2017.
Tullow highlighted that appraisal work in Kenya’s South Lockichar area underpins the resource estimates of around 600mln barrels.
Drilling resumed in Kenya last month, starting with the Emesek-1 well and the programme will continue into 2016.
“Whilst the recent farm-out of Africa Oil’s acreage to Maersk in Kenya has helped to de-risk Tullow’s Lokichar development, we still have concerns regarding the company’s leverage position, which we believe is a key factor in the company announcing today that it will further curtail capex into next year,” said Cantor Fitzgerald analyst Sam Wahab.
Caren Crowley, analyst at Davy, meanwhile, said: “A focus on cost and capital management is becoming relentless, albeit necessary, as evidenced by news on farm-outs and lower capex guidance.
Tullow shares fell 16.5p or 7.6% to trade at 197.7p each.