LONDON – Tullow Oil reported a deeper-than-expected operating loss for the first half as lower oil price expectations forced it to book hefty impairment charges, but the market welcomed news it had raised a cost-saving target by $150 million.
London-listed Tullow, whose main operations are in Africa, stayed in the red in the first half 2017 with an operating loss of $395 million, steeper than the $350 million loss expected by analysts. This was mainly due to a $572 million charge on its Ghanaian TEN oilfields, which it brought on stream last year.
This extends Tullow’s loss-making streak after it reported a third straight annual loss for 2016 in February.
But the firm, which appointed a new chief executive and chief financial officer in the past three months, is starting to turn a corner after it was hit hard by falling oil prices when it was spending heavily on new projects.
Tullow was free cash flow positive in the first half of the year at $205 million and managed to reduce debt to $3.8 billion, down from $4.8 billion at the end of 2016, mainly due to using the proceeds from a surprise rights issue.
On Wednesday, Tullow also announced a fresh internal cost reduction target of $650 million by mid-2018 from a mid-2015 base.
“We believe the company has turned a corner. Tullow has the ability to generate free cash flow and further improve its balance sheet, whilst also continuing to offer high-impact exploration potential,” said analysts at BMO Capital Markets.
Tullow’s shares were up 2.7 percent at 0750 GMT, outperforming the sector index that was up 0.9 percent.
The firm is gearing up to drill for oil offshore Suriname in an area close to where U.S. oil major Exxon Mobil Corp announced a new oil discovery and raised its resource estimate on Tuesday.
But shareholders expecting a reinstatement of the dividend will have to remain patient. CEO Paul McDade told Reuters the company was unlikely to do this before the end of next year.
“We see the dividend as a potential part of that overall shareholder return at the right time,” he said, adding that bringing production from the TEN oilfields to full capacity over the coming 18 months would be one of the parameters to meet.
Editing by Louise Heavens and Edmund Blair