In December 2010, John Atta Mills, the late president of Ghana, opened the valves that set the first gush of crude flowing from Tullow Oil’s Jubilee field off the African country’s coast. The exploration group, founded by former chief executive Aidan Heavey, was on the cusp of becoming one of its industry’s biggest players in Africa.
Almost precisely nine years later, on December 9th, 2019, Tullow cut forecasts for production from Ghana for the fourth time in 12 months and suspended dividends. Chief executive Paul McDade and head of exploration Angus McCoss quit. Its shares collapsed, wiping €1.7 billion off the company’s value.
This week Tullow said that drilling in its Carapa-1 well off Guyana’s coast in South America found less oil than expected, but indicated that a nearby lucrative field extended into the company’s licence areas.
Analysts saw either the negative or the positive. Investors, though, were not divided. Tullow’s shares shed almost 7 per cent, knocking €60 million off its value on Thursday. The price steadied on Friday, gaining just 0.57 per cent.
The obvious question is: where to now? Tullow has net debt of $2.8 billion (about €2.5 billion), but a dip in production potentially limits cashflow, and thus its ability to repay this. While Ghana has its problems and Guyana has so far been disappointing, there are other assets.
These include the Lake Albert rift basin discovery in Uganda, the legacy of the group’s 2007 purchase of Hardman Resources, which propelled Tullow into the FTSE 100.
This could yield 1.7 billion barrels of oil. Tullow holds a one-third stake in the project, but wants to sell part of this. The other partners are France’s Total and Chinese player Cnooc. Tullow has interests in a similarly sized field in Kenya that it is working with the government there to develop. Both discoveries are a long way from production and will need cash to get there.
More immediately, the group needs to tackle its debt and cut costs. It is a very different picture now from the day that Atta Mills turned on the Jubilee field taps.