Tullow writes off $2.3 billion as oil price falls

Africa-focused oil and gas explorer Tullow Oil has written off $2.3 billion in relation to exploration work and a number of its assets after the oil price rout.

Markets welcomed a cut to expenditure this year and details of hedged oil sales for 2015, with Tullow shares initially trading 3.3 per cent higher before paring gains.

The London-listed company, under pressure to slash costs amid a collapse in oil prices, cut its losses on exploration work in French Guyana, Mauritania and Norway, and trimmed group investments for 2015 by around $200 million to $1.9 billion.

“We are resetting the business for a low oil price environment,” Tullow Chief Executive Aidan Heavey told Reuters.

Oil companies across the globe have been hit by a 60 per cent drop in crude prices in seven months, putting them under pressure to find new areas of their businesses where costs can be trimmed.

Oil major BP is expected to announce job cuts in its North Sea operations on Thursday.

Tullow, which reports full-year 2014 results on February 11, said it expected to make a gross profit of $0.6 billion in 2014, with revenue of $2.2 billion, slightly below analyst estimates compiled by Reuters.

However, analysts welcomed the firm’s cut in exploration costs and the fact that 60 per cent of its 2015 oil sales had been pre-sold at a floor price of $86 per barrel.

The company also has hedges in place for the following two years.

“We see the update slightly on the positive side. The increase of 2016 hedges and the further cut in exploration expenditures are good defensive measures,” said analysts Oriel Securities, who recommend buying the oil company’s stock.

Tullow, Britain’s fourth largest oil and gas firm and a FTSE 100 company, is continuing to review how it can further reduce operational expenses, which will include a reduction of its 2,000-strong headcount.

The oil company’s key new production asset, its TEN oil field in Ghana, is on track for a mid-2016 start-up.

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