One of the world’s top oil explorers, Tullow Oil, was plunged into crisis on Monday after a massive reduction in the amount of barrels it produces prompted the exit of the chief executive and a 60% share price wipe-out.
The FTSE 250 producer, which dominates production in west and east Africa, was left reeling after severely reducing the number of barrels of oil set to be extracted over the next three years following engineering problems at two major sites in Ghana.
The heavily indebted firm suspended the dividend amid questions over its future, sending shares to a 19-year low of 59.4p.
Chief executive Paul McDade resigned immediately alongside exploration director Angus McCoss. McDade has been at Tullow for 18 years.
Chairman Dorothy Thompson, the former boss of Drax, will take the reins and find a new CEO. She has launched a review amid fears high debts may cripple the troubled business.
Tullow expects to produce 70,000 to 80,000 barrels of oil a day next year and then 70,000 for the next three years, 30% down on some analysts’ forecasts.
The company has already cut production three times this year, the last time in November after discovering a key oil site in Guyana was producing black stuff with too much sulphur.
There were questions about why the problems in Ghana were not flagged to senior management sooner, with one analyst asking management if there was a “culture of fear” that prevented them being raised.
Thompson said: “I have not done a forensic investigation about why the message has not flowed through. What is really important is that we have true transparency and openness.”
Stifel analyst Chris Wheaton said: “There were warning signs that communication within the organisation was a concern. Given the production downgrades already seen in 2019, for us the question now is around whether the business needs an additional injection of equity.”
Tullow has net debt of $2.7 billion —with $1 billion due to be paid back over the next three years. Free cash flows will be just $150 million due to the production hit, down from $500 million.
City analysts say the firm may need to tap shareholders for cash to help cut the debts.
The Irish-founded firm normally issues 2020 guidance in January but was so spooked by the Ghana woes that it rushed the number out today.