Tullow executives quit as production falls below expectations

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UK-based Tullow Oil said on Monday Paul McDade, Chief Executive Officer, and Angus McCoss, Exploration Director, have resigned from the Board by mutual agreement and with immediate effect. This comes as the company reported that while its financial performance has been “solid”, production has been “significantly below expectations.”

In wake of the resignations, Tullow said Dorothy Thompson has been appointed Executive Chair on a temporary basis and Mark MacFarlane, Executive Vice-President, East Africa and Non-Operated, has been appointed as Chief Operating Officer in a non-Board role. Les Wood continues as an Executive Director and Chief Financial Officer. The Board has initiated a process to find a new Group Chief Executive.

Executive Chairman, Dorothy Thompson, thank McDade and McCoss for their hard work and dedication to the company over the years. She said they leave behind a business that has delivered two major offshore developments in Ghana, made significant oil discoveries in Kenya and Uganda and has a high-impact exploration portfolio, which remain the key building blocks of Tullow’s business today.

“The Board has, however, been disappointed by the performance of Tullow’s business and now needs time to complete its thorough review of operations,” Thompson stated. She added, “Despite today’s announcement, the Board strongly believes that Tullow has good assets and excellent people capable of delivering value for shareholders. We are taking decisive action to restore performance, reduce our cost base and deliver sustainable free cash flow.”

As disclosed in Tullow’s Trading Update on November 13, the Group expects 2019 full year net production to average c.87,000 bopd. The Group also expects to deliver free cash flow of c.$350 million, has liquidity headroom in excess of $1 billion and no near-term debt maturities.

“Whilst financial performance has been solid, production performance has been significantly below expectations from the Group’s main producing assets, the TEN and Jubilee fields in Ghana,” the company said.

A review of the production performance issues in 2019 and its implications for the longer-term outlook of the fields has been undertaken and has shown that the Group needs to reset its forward-looking guidance. 2020 Group production is forecast to average between 70,000 and 80,000 bopd. Group production for the following three years is expected to average around 70,000 bopd.

Tullow said a number of factors have been identified that have caused this reduction in production guidance. 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. 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. “The non-operated portfolio is performing well, and production is expected to be sustained for the medium term,” the company stated.

Independent reserves audits carried out during the year indicate that oil reserves are likely to remain broadly flat at year-end 2019 compared to the previous year-end (excluding the impact of 2019 production). The audits show increased oil reserves for Jubilee, Ntomme (one of the TEN fields) and the non-operated fields which are largely offset by a c.30% decrease in Enyenra reserves.

Meanwhile in Guyana, the drilling of the Carapa-1 well on the Kanuku Block continues, with a result expected before year-end. Carapa-1, operated by Repsol, is the first well to test the deeper Cretaceous play in Tullow’s Guyana acreage.

The company recently made two discoveries at the Orinduik Block offshore Guyana but subsequent analysis revealed that the crude from these finds is heavier and more sulphurous than expected.

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