Tullow Oil cuts production forecasts as Ghana problems persist

The company said annual oil output was expected to 87,000 barrels per day (bobp), compared with earlier guidance of 89,000 – 93,000.

Tullow has wrestling with mechanical problems at its Jubilee field and a delay in completing a well at TEN offshore field in Ghana. Wednesday's forecast cut was the third this year.

"At Jubilee, gross full year 2019 production is forecast to be around 89,000 bopd. The lower than forecast full year outcome is predominantly due to topside issues which have constrained water injection and gas handling. Water injection will be returned to full capacity by the end of November and enhancements to the gas handling system are planned for early 2020," the company said.

It added that TEN full year 2019 production was forecast to be around 62,000 bopd as production was hit by the suspension of a well.

In Guyana, samples from well testing indicate that the oils recovered from both Jethro-1 and Joe-1 were heavy crudes, with high sulphur content.

Tullow said it expected full year free cash flow to be around $350m compared with a previous forecast of $400m.

“Free cash flow generation has been adversely affected by lower production, and by lower oil prices for much of the second half of the year,” the company said in a statement.

“Despite lower than forecast free cash flow, the Group continues to focus on debt reduction, and net debt at the end of 2019 is expected to be around $2.8bn (from $3.1bn at the beginning of the year),” Tullow said.

Hargreaves Lansdown analyst Nicholas Hyett said 2019 was "turning into a bit of an annus horribilis for Tullow shareholders”.

“This is a salutary reminder that not all oil is made equal. Heavy and sulphurous crudes are expensive to refine and as a result attract bargain basement prices, that significantly undermines the commercial value of Tullow’s Guyana assets – although the company hasn’t given up hope of finding more profitable oil elsewhere in the basin," he said.

"At the same time problems in the massive West African fields has seen production slip up – and combined with lower oil prices that means free cash flow isn’t going to meet management’s expectations. Given the group has recently started paying a dividend, but still has some work to do on debt reduction, that’s far from ideal."