Tullow Oil shares sink after energy group cuts free cash flow expectations

Tullow Oil Shares plunged Thursday morning after the energy company lowered its free cash flow forecast.

The West Africa-focused energy producer now expects to achieve between $150 million and $200 million in free cash flow this year, compared to a previous forecast of $200 million to $300 million due to payment delays.

It now expects incremental payments for its Jubilee field to arrive in January 2025, while the Ghanaian government currently owes around $40 million in gas arrears to the company.

Shares in the London-based company fell 9.4 per cent to 20.7 pence shortly after 11am, making it the FTSE All-Share IndexIt is the second biggest drop behind Ithaca Energy.

Tullow further revealed that oil production at the Jubilee field in Ghana averaged around 89,000 barrels of oil equivalent per day (boepd) through the end of October, below forecasts.

It said this was due to poor well performance, power outages affecting water injection levels and “unplanned downtime” at an onshore gas processing plant.

In comparison, oil production exceeded expectations at its TEN development, totaling around 19,000 boepd.

Additionally, the group said non-operated production would average around 10,500 barrels per day in 2024, which is in line with predictions.

Rahul Dhir, CEO of Tullow, said: ‘Our cash-generating business allows us to continue our deleveraging process.

“This has been achieved despite poor performance at the Jubilee field, which has been partly offset by strong performance at TEN.”

He added: “We are well positioned to optimize our capital structure and look forward to advancing plans to address remaining debt maturities.”

Tullow expects its net debt to equal about $1.4 billion by the end of 2024, meaning it will have halved over the past five years.

The company has achieved this in part by cutting capital expenditures, selling assets in Gabon and Equatorial Guinea and divesting a stake in some onshore oil fields in Uganda.

Its finances have also benefited from rising oil prices caused by the easing of pandemic-related travel restrictions, OPEC+ countries limiting production, and Russia’s large-scale invasion of Ukraine.

Under its current strategy, the group aims to have less than $1 billion in net debt by 2025 and less than 1x cash leverage in the near term.