Independent energy firm Tullow Oil revealed Thursday that it would cut its exploration budget to just $200 million this year after spending approximately $1 billion on exploration activities in 2014.
In a trading update Tullow stated that it expects to report revenue for 2014 of $2.2 billion, with gross profit coming in at around $600,000 and pre-tax operating cash flow at $1.5 billion.
The fall in the oil price has cost Tullow at least $1.6 billion, it said. The firm – which is largely focused on Africa – has written off around $400,000 in relation to 2014 exploration activities in Norway, Mauritania and Ethiopia and taken a further impairment charge of $1.2 billion relating to drilling and license costs from prior years.
For this year, the firm expects to maintain its capital spending budget at $1.9 billion, although this will be largely directed at production assets and the commercialization of existing discoveries.
Commenting in a company statement, Tullow Chief Executive Aidan Heavey said:
“Tullow has already taken steps to strengthen the business to adapt to current market conditions. This work will continue during 2015 to ensure the group is in a position to benefit when conditions improve. In late 2014, we materially reduced our 2015 exploration capital expenditure and today announce a further cut to this expenditure to $200 million. We continue to carry out a review of the business to streamline processes and improve efficiencies which will result in significant long-term cost savings.
“We have re-allocated our future capital to focus on delivering high-margin oil production in West Africa which will grow significantly to around 100,000 [barrels of oil per day] net to Tullow by the end of 2016 and will generate stable, long-term cash flows for the business. The reduced exploration program will predominately focus on a number of high-impact, low-cost exploration opportunities in East Africa.”
Oil sector analysts at London-based investment bank Westhouse Securities noted that Tullow is “battling” to respond to the oil price collapse.
“They are taking the opportunity to kitchen sink most of the peripheral assets in the portfolio,” Westhouse added.