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Tullow Oil shares crash (again) as CEO exits amid major downgrades to Ghana production

"The board has been disappointed by the performance of Tullow's business and now needs time to complete its thorough review of operations," said chair Dorothy Thompson.

Tullow Oil plc -

Tullow Oil plc (LON:TLW) shares saw a disastrous start to Monday’s trading, falling 58% in opening deals, as senior executives resigned amid another warning over the production performance offshore Ghana.

The FTSE 350 oiler flagged a near 20% cut to production forecasts for 2020 onwards, bringing a severe reduction in cash flows.

It has suspended the dividend and plans to take a cleaver to the capex budget, reducing it by nearly US$200mln.

Tullow shares fell 83.27p or 58.8% to trade at 58.35p each – it has collapsed from around 240p since September.

READ: Tullow Oil says it will miss production guidance for 2019

Chief executive Paul McDade and exploration director Angus McCoss both resigned by mutual agreement, Tullow said.

Chair Dorothy Thompson will assume executive duties on a temporary basis and Mark MacFarlane, executive vice-president, for Tullow’s East Africa division, will take on a non-board position as chief operating officer.

Tullow has launched a process to find a new group chief executive.

West Africa problems reset 2020 guidance

In Monday’s statement, Tullow told investors that its financial performance for 2019 has been solid but production performance at key West Africa assets, the TEN and Jubilee fields, has been significantly below expectations.

It has conducted a review of this year’s production performance issues and its potential implications, and, consequently has hit reset on next year’s guidance.

Tullow now forecasts production between 70,000 and 80,000 barrels of oil per day (bopd) for 2020. It also now anticipates output of around 70,000 bopd over the three years thereafter as well.

That compares to an expected 87,000 bopd for 2019.

The company pointed to a number of factors as the cause for its downgrade. They include a significantly reduced gas offtake (supplied at no cost) into the Ghana National Gas Company, increased water cut in some wells, and lower facility availability.

It also noted mechanical problems and faster than expected production decline at Enyenra, one of the TEN fields.

Elsewhere, though, Tullow said that its non-operated portfolio of assets is “performing well”.

Spending review

With the prospect of a 19.5% decline in output over the coming years, the company has launched a thorough reassessment of its cost base and future investment plans.

The company said it intends to “allocate appropriate capital to the group's core production assets, development projects and continued exploration.”

A series of actions will help deliver sustainable free cash flow, it added.

The aim is to cut capital expenditure, operating costs and corporate overhead.

Next year, the company now expects to spend US$350mln, down from an anticipated US$540mln for 2019.

Tullow said that it expects to generate underlying free cash flow of at least US$150mln in 2020, compared to guidance last month that 2019 cash flow would amount to US$350mln.

Management has decided to suspend dividend payments, in light of the significantly reduced cash flow forecast.

In the statement, Dorothy Thompson said: “The board has been disappointed by the performance of Tullow's business and now needs time to complete its thorough review of operations.

“A full financial and operational update will be provided at Tullow's Full Year Results on 12 February 2020, with an update on progress to be given in the group's Trading Statement on 15 January 2020.”

Quick facts: Tullow Oil PLC

Price: 17.285 GBX

LSE:TLW
Market: LSE
Market Cap: £243.48 m
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