Tullow Oil shares slid 72 per cent to levels not seen since 1999 as the group cut its oil production forecasts for the coming years, suspended its dividend, and announced that its chief executive Paul McDade and its exploration director Angus McCoss had quit.
The share price slump wiped £1.43 billion (€1.7 billion) off its stock market value, and reignited market speculation that it could be a takeover target.
Chair Dorothy Thompson, who has taken over temporarily as executive chair, told analysts on a call that as a listed business it is "always open to offers at an attractive value".
The announcement came less than a month after Tullow shares lost more than a quarter of their value as the company cut its 2019 output forecast for a third time amid issues at two oil fields, called Jubilee and TEN, off the Ghana coast in west Africa, and as it warned about the commercial viability of two major oil discoveries in Guyana in South America.
Mr McDade had led the company since April 2017, succeeding its founding chief executive Aidan Heavey.
Mr Heavey, who retired from the board last year, has seen the value of his 8.79 million company shares slump by as much as £18.5 million from their April highs to as low as £3.51 million.
Having downgraded its 2019 production forecasts three times so far this year, Tullow said on Monday that its output for 2020 will fall to between 70,000 and 80,000 barrels of oil per day (bopd) from 87,000 for this year.
It said production for the following three years was expected to average 70,000 bopd, down from previous guidance of 100,000 bopd.
However, chief financial officer Les Wood insisted on the analysts call that the group was “well within” its banking covenants and played down market speculation that it will need to raise fresh equity. The company has access to $1 billion (€900 million) on its existing reserves-based lending credit facility from banks.
Share-price weakness
Analysts at RBC Capital Markets said they would “not rule out an opportunistic approach that takes advantage of the share-price weakness and shareholders’ ill will”.
Bloomberg Intelligence analyst Will Hares said “engagement of a strategic review increases the likelihood of an eventual sale of the company”.
Mr Wood said that “reducing our debt pile will continue to be our priority”. However, he conceded that “in the short-term, it will be going a little slower”.
The company had previously said that its full-year net debt should amount to $2.8 billion.
Cantor Fitzgerald analyst Darren McKinley said investors were now questioning the viability of Tullow continuing as a “leveraged vehicle”.
“The board believes that a series of actions will help deliver sustainable free cash flow. These actions include reducing capital expenditure, operating costs and corporate overheads,” Tullow Oil said.
“In 2020, the board expects the group to generate underlying free cash flow of at least $150 million at $60 a barrel after a group capital investment of $350 million. Considering this level of expected free cash flow, the board has decided to suspend the dividend,” it added.
“Despite today’s announcement, the board strongly believes that Tullow has good assets and excellent people capable of delivering value for shareholders,” said Ms Thompson. “We are taking decisive action to restore performance, reduce our cost base and deliver sustainable free cash flow.”
Shares in Tullow plummeted by 72 per cent in London to 39.94p. They had traded as high as £2.50 in April.
