Tullow chief plans to boost exploration spend and continue to reduce debt level

Tullow Oil CEO Paul McDade says his main agenda is growth. Photo: george@georgebrooks.net
Tullow Oil CEO Paul McDade says his main agenda is growth. Photo: [email protected]

Tullow Oil plans to boost spending on exploration from around $90m (€77m) this year to around $150m (€128.5m) next year.

It has significantly reduced its debt in recent years. CEO Paul McDade told the Irish Independent that his “big agenda” is to get the company back in strong growth mode after repairing the balance sheet.

The company’s gearing ratio – a measure of debt relative to earnings – stands with debt at two times earnings. That’s below the board’s policy target of two-and-half times debt to earnings.

Net debt stands at $3.1bn. But despite outperforming the policy target, Mr McDade said he wants to reduce the company’s debt further, from $3.1bn to $2.5bn.

“When we look at the absolute level of debt, $3.1bn still feels a bit high given the ebitda [earnings before interest, taxation, depreciation and amortisation] we have and the shape of the company, and we want to push it down a bit.

“$2.5bn feels like a comfortable level of debt for the company – even if oil prices came off to $50 we would still be within the two-and-a-half times gearing ratio,” Mr McDade said.

Asked about the oil price, which has been trending upwards in recent months, Mr McDade said geopolitical events had brought increases forward.

“If we can keep steady at these sort of prices we can generate very high levels of cash flow and sustain them, and really get the company back to growth. That’s my big agenda now the balance sheet is sorted out.”

He said the exploration prospect the company is most excited about is in Guyana. Yesterday Exxon Mobil lifted its estimate of recoverable barrels from a prospect at which Tullow has adjacent assets.

“You could definitely expect to see us drilling there next year and there may be a couple of wells that we would drill in that area. It’s kind of the hottest territory globally from an exploration point of view.”

In Kenya, where the company has been operating a pilot project disrupted by protests against the government, Mr McDade said he expects operations to be restarted over the coming weeks. “It’s part of what we expected to happen and we’re very keen to get these sorts of issues ironed out now and early before we start the really big investment,” he said.

Yesterday the company said first-half revenue was up from $788m last year to $905m this year. Profit after tax was $55m.

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