Uganda’s failed deal leaves Tullow Oil counting losses

Uganda’s decision not to grant Tullow Oil an approval to sell a substantial stake of its shareholding in the country’s oil fields heavily dampened the UK firm’s 2019 balance sheet, with the company quoting a historical $1.7 billion annual loss at a time when oil prices have collapsed due to the outbreak of the coronavirus disease.

Tullow Oil was hurt by the millions of dollars it set aside to cover up for financial losses – usually known as impairment charges – and exploration write-offs it incurred in projects where it felt it was throwing good money after bad.

In an unprecedented move, Dorothy Thompson, the board chair of the company, apologized to the shareholders for the poor performance, but tried to calm their fears by promising to turn around the fortunes of the company this year.

“The board was disappointed by the operational and financial performance, and the overall executive leadership of Tullow’s business in 2019. On behalf of the board, I would like to apologise for this poor performance,” she said in the group’s financial results for 2019, released late last week.

According to the numbers, Tullow recorded a loss of $1.7 billion in 2019, compared to the $85 million profit it made the previous year. Annual revenues dropped by $200 million to $1.7 billion in 2019, while net debt reduced to $2.8 billion from the $3.1 billion a year earlier.

Thompson believes the new management that replaced the older crop that quit late last year will take the company back to the path when it was one of the most sought-after oil exploration firms in Africa. Tullow’s troubles could not have come at a worse time.

The spread of the coronavirus disease has rattled financial markets, sliced off a huge chunk of planned capital investments, further pushed back any key business decisions, and dragged down oil prices to new lows of less than $30 a barrel. With the global recession imminent, the value of oil assets is likely to slump. The virus has claimed the lives of more than 10,000 people.

Due to Tullow Oil’s poor performance, the company’s bargaining chips in the negotiations to sell some of its stake in Uganda just got smaller. Since early 2017, Tullow Oil has been looking to sell 21.5 per cent of its Uganda stake to its joint venture partners for a cash consideration of $900 million.

Together with France’s Total and China’s Cnooc, the three oil companies […]

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