In 2015, Tullow Oil is expected to deliver revenue of some $1.6 billion, gross profit of $0.6 billion and operating cash flow of $1 billion, all in line with market expectations.
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Due to the current low oil price, a number of accounting charges are forecast to be incurred in the 2015 income statement.
These charges comprise a post-tax exploration write-off of c.$0.4 billion, a post-tax impairment charge of c.$0.3 billion and an onerous rig contract charge of c.$0.2 billion as a result of much lower levels of exploration and appraisal drilling activity planned for 2016.
Tullow’s hedging position provides significant protection of future revenues and cashflows.
The mark-to-market value at the end of December 2015 was $623 million and Tullow will benefit in 2016 from approximately 52% of entitlement oil production hedged at an average floor price of around $75/bbl on a pre-tax basis and approximately 64% hedged on a post-tax basis.
These hedges are accounted for separately and are not used in impairment calculations which compare book values with future pre-hedge discounted cash flows.
During 2015, Tullow increased the capacity of its RBL and Corporate Facilities by $450 million. At the end of 2015, Tullow had total facility headroom and free cash of $1.9 billion and net debt of $4.0 billion.
The improvement in the year end net debt and liquidity versus previous forecasts is largely due to ongoing capex and cost management plus the timing of payments in relation to the TEN Project which has resulted in 2015 Group capex totalling $1.7 billion versus guidance of $1.9 billion.
The Group’s capital expenditure associated with operating activities has reduced from $1.7 billion in 2015 to $1.1 billion in 2016 and the Group is looking at additional opportunities to reduce it further.
The current total comprises TEN capex of c.$600 million, Jubilee of c.$150 million, West Africa non-operated of c.$100 million, East Africa pre-development expenditure of c.$150 million and Exploration and Appraisal of c.$100 million.
Despite current low oil prices, Tullow expects to maintain sufficient liquidity throughout 2016.
The Group starts the year with financial headroom of $1.9 billion, is benefiting from a significant hedge position, will see West Africa oil production increase with TEN first oil and will continue to focus on reducing costs and capex across the portfolio.
The primary focus of the Group in 2016 remains to deleverage the balance sheet. ■