Africa-focused oil explorer Tullow Oil reduced debt in the first half of the year and reported a rise in gross profit under new CEO Paul McDade but a recent drop in oil prices means the company's bottom line remains under threat.
Tullow has been under pressure to lower its mounting debt pile, racked up as it borrowed money to pay for the 2016 start-up of its giant TEN oilfields off Ghana, and to rein in spending elsewhere amid weak oil prices. On Wednesday, it reported a 17 percent fall in net debt to $3.8 billion (£3 billion) in the second quarter, a level it had targeted by the end of the year.
The company used proceeds from a surprise $750 million cash call made in March to reduce borrowings. Tullow also reported a year-on-year increase in gross profit to $300 million, up from $200 million a year ago, as it benefited from rising production and an insurance payment to cover lost output during a shutdown.
The company also cut its annual capital expenditure budget by another $100 million to $400 million as it expects to have to spend less this year.
However, as oil prices have fallen around 15 percent in just four weeks, Tullow's share price has fallen by nearly 30 percent over the same period and bearish price expectations mean analysts are expecting further impact on Tullow's valuation.
Tullow shares were down 2.8 percent at 0919 BST. "Although Tullow is working hard to deliver on its potential, we continue to expect the stock to trend with the oil price," analysts at RBC Capital Markets said.
Tullow reported a $600 million net pre-tax impairment charge on the back of weak prices in the first half. As an exploration company, Tullow continues to drill for fresh resources and is focusing much of its exploration campaign on offshore Guyana and Suriname, a region where oil major Exxon Mobil and its partners earlier this month sanctioned a $4.4 billion project.
"The prospect we are drilling is of the scale of the Greater Jubilee discovery in Ghana, it's a massive prospect," CEO McDade told Reuters. He said explorations costs continued to fall and that the well Tullow is drilling off Suriname is costing around $60 million less than the company would have paid a few years ago.