Oil and gas group Tullow Oil has announced that its profits dropped significantly in the first six months of 2023 on the back of a substantial drop in crude prices, as it disappointed the market with lower-than-expected output guidance for the full year.

The London-based energy giant reported first-half revenue figures of $777 million, compared with $859 million previously recorded. This was underpinned by a substantial gross profit of $351 million, though also lower than last year. Impressively, the company secured a profit after tax amounting to $70 million.

The company, meanwhile, narrowed its full-year production target to 58,000-60,000 barrels of oil equivalent per day (boepd), at the lower end of previous guidance of 58,000-64,000 boepd.

Tullow explained that this was due to the first-half performance at its flagship Jubilee field offshore Ghana being “slightly below expectations” and the timing of the Jubilee South East start up in the second half of the year.

Despite sales volumes rising to 56,900 boepd in the first half of 2023, from 53,500 boepd in the first half last year, the realised oil price slumped to $73.3 a barrel, down from $86.3 a barrel a year earlier.

Operating Costs Falls

Underlying cash operating costs fell to $136m from $143m, but that wasn’t enough to stop pre-tax profit from continuing activities falling to $217m, from $561m. Basic earnings per share dropped to 4.9 cents, from 18.4 cents.

“We are at an important inflection point in the evolution of our business plan,” said chief executive Rahul Dhir. “For the last two and a half years we have relentlessly focused on capital discipline, operational performance and appropriate investment in our assets,” he added.

This has resulted in a much-improved business, material debt reduction and most recently, the delivery of Jubilee South East which has substantially increased production.

“We now switch to harvesting mode as our business is set to generate c.$800 million of free cash flow between 2023 and 2025, whilst we will continue to run our business with the same discipline. This will enable us to further reduce our debt, put in place a sustainable capital structure and grow our business to create value for our investors, host nations and employees.”
Rahul Dhir

Looking ahead, Tullow has narrowed its full-year oil production guidance to 58 to 60 kbopd, supplemented by an expected additional c.7 kboepd of gas production from its Ghanaian operations. Capital expenditure projections remain unchanged at approximately $400 million, with decommissioning spend anticipated to reach c.$70 million.

Financial insights reveal an underlying operating cash flow of $188 million, demonstrating the company’s operational stability. However, despite considerable investments, free cash flow stood at $(142) million, a testament to Tullow’s unwavering commitment to strategic growth and sustainability. Capital investments reached $187 million, accompanied by a provision of $44 million for decommissioning costs.

Tullow’s financial posture remains sturdy, with net debt standing at $1.9 billion and a gearing ratio of 1.7x (net debt/EBITDAX). The company retains a healthy liquidity headroom of $0.7 billion, ensuring financial stability in the face of market uncertainties.

Notably, the second half of the year is expected to witness a substantial reversal in free cash flow, with an estimated c.$200 million generated at an assumed oil price of $80/bbl. The full-year free cash flow guidance remains steady at c.$100 million under these conditions.