Tullow Tanks On Lower Production View, Dividend Suspension

Shares of Tullow Oil (LON:TLW) PLC (TUWOY) plunged to a 20-year low after it showed a drop in 2020 production and suspended its quarterly dividend. The stock dived more than 65% to close at 32 cents yesterday, a level last seen in 2000.

Tullow also announced resignations of its CEO Paul McDade and exploration director Angus McCoss. The company is in search of a new CEO and until then, Dorothy Thompson will serve as a stopgap.

Despite this Africa-focused oil and gas producer’s strong financial performance, its production performance was unsatisfactory due to lower-than-expected results from the TEN and Jubilee fields in Ghana, two of the company’s main producing assets.

Particularly, a major slump in the production of gas by the Ghana National Gas Company at Tullow’s Jubilee field along with the rising level in water removal from certain wells and poor facility uptime caused this underperformance.

Moreover, TEN’s Enyenra field struggled with some mechanical issues in two of its new wells, which further limited the availability of well stocks. This, in turn, accelerated the drop in the field’s resource.

Tullow’s 2020 production guidance is anticipated in the range of 70,000-80,000 barrels of oil per day (bopd), lower than the current year’s expected figure of 87,000 bopd. For the three years following 2020, average production is projected to be 70,000 bopd.

This European exploration and production company is further taking into consideration certain measures, such as cutting down on capital spending, operating and corporate overhead costs for delivering sustainable free cash flows bearing in mind its production downsides.

For 2020, Tullow forecasts its free cash flow to be no less than $150 million at $60 per barrel of oil after investing nearly $350 million in capital. Based on these free cash flow expectations, the management is determined to scrap the dividends. While skipping the quarterly dividend payout might help Tullow focus on reducing its debt burden and improving its balance sheet, the company will still likely end up souring public sentiment and hurting income investors.

Zacks Rank & Key Picks

Tullow currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the energy space are Valero Energy Corporation (NYSE:VLO) , HollyFrontier Corporation (NYSE:HFC) and Phillips 66 (NYSE:PSX) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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