Tullow Oil plc (LON:TLW) has downgraded its production guidance following start-up problems with the newly-commissioned TEN field offshore Ghana.
However debt-laden explorer has reduced costs far enough that it will exit the year generating free cash of US$900mln.
This is a crucial achievement for the explorer and developer, which will end 2016 with US$4.9bn of debt.
It has kicked the debt 'can' down the road a little by securing a reserve based lending facility of US$3.3bn and US$345mln of new commitments from existing lenders ahead of the expiry of its current debt line.
It now has breathing space, or as Tullow called it, ‘headroom’, to refinance.
The firm provided the commentary as part of an update for the period from July 27 to date.
In this it revealed issues with the water injection system were to blame for weaker than expected production from the TEN field, which is now expected to average 15,000 barrels per day for the remainder of the year.
Repair work on part of the Jubilee field, offshore Ghana, has gone well. However, it too will act as a dampener to production, which is expected to be in the range of 64-67,000 barrels per day. In April Tullow told the market its daily output would be in the region of 73-80,000 barrels per day.
The shares rose 1.6% in early afternoon trade at 261.4p, although worries remain over the company's financial situation.
"Whilst TEN’s cash generation will go some way to shoring up Tullow’s free cash flow, we still harbour concerns over the company’s highly leveraged position against the backdrop of a challenging sector environment," said Sam Wahab, analyst at Cantor Fitzgerald, who rates the stock 'sell'.
Of the 17 analysts logged by the Broker Forecasts as following Tullow, only three have negative ratings on the stock. Ten are ‘buyers’ with remainder holding ‘neutral’ recommendations. The consensus price target is 253p. up from 226p six months ago.
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