Tullow takes massive write-down as profits halve in 2014

Tullow Oil said write-offs and impairment charges for 2014 would total billions of dollars after profits more than halved last year due to the collapse in crude prices.

In a pre-closing trading update on Thursday, the exploration and production company said it expects to write down $1.6bn of assets, take a $0.6bn impairment charge and recognise a $0.5bn loss on disposals.

Tullow guided to revenues of $2.2bn for 2014, down from $2.6bn the year before as sales volumes dropped to 67,400 barrels of oil equivalents per day (boepd) from 71,600 boepd.

Ahead of Tullow’s full-year results due 11 February, it said gross profit is expected to be just $0.6bn, down from $1.4bn in 2013.

Pre-tax operating cash flow was $1.5bn by the end of last year, down from $1.9bn previously.

The company, like others in the sector, has already planned a substantially scaling back of exploration and spending due to the recent plunge in commodity prices, with Brent crude currently trading close to a six-year low of $46 per barrel.

After hedging the price of oil in previous years, the realised price was $97.50 a barrel for 2014, though this was still down from $105.30 a barrel the previous year.

Tullow, which had already warned of “substantial” write-offs and impairments for 2014, said that it will write down $0.4bn in relation to exploration activities in Norway, Mauritania and Ethiopia.

A review also resulted in non-cash exploration write-offs of $1.2bn relating to drilling and licence costs from prior years. These were mainly due to previously-reported unsuccessful offshore drilling activities in French Guiana, Mauritania and Norway.

Meanwhile, the 2014 impairment charge is expected to total $0.6bn after a review of carry values of all property, plant and equipment assets at current commodity prices and the impairment of goodwill related to the acquisition of Spring Energy.

It also recognised a $0.5bn loss on disposal, mainly due to an updated assessment of the recoverability of a Uganda contingent consideration and the partial sale of the UK Schooner and Ketch gas fields.

Capital expenditure for 2015 is now forecast to be $1.9bn, down from previous guidance of $2bn and in line with 2014.

“There is further scope for capital expenditure reductions going forward as Tullow enters discussions with partners and suppliers regarding potential savings as industry costs decline,” the company said.