Tullow cuts projects by £1.5bn as oil's fall bites

The tumbling oil price has forced the FTSE 100 oil and gas explorer Tullow Oil to write off $2.3bn (£1.5bn) from the value of its exploration projects and other assets.

Coming on the day that BP announced hundreds of job cuts in its North Sea operations, the announcement highlighted yet again that while consumers benefit from the oil deflation, many investors and workers in the industry are suffering badly.

The London-listed company, under pressure to slash costs amid the price collapse, cut its losses on exploration work in French Guyana, Mauritania and Norway, and trimmed group investments for 2015 by around $200m to $1.9bn. “We are resetting the business for a low oil price environment,” said the chief executive Aidan Heavey.

Oil companies worldwide have been hit by a 60 per cent drop in crude prices in seven months, putting them under pressure to find areas of their businesses where costs can be trimmed.

Tullow, which reports full-year results on 11 February, said it expected to have made a gross profit of $600m in 2014, with revenue of $2.2bn, slightly below analyst estimates compiled by Reuters.

However, analysts welcomed the cut in exploration costs and the fact that 60 per cent of Tullow’s 2015 oil sales had been at a floor price of $86 per barrel, thanks to hedges put in place before the market collapse. The company also has hedges in place for the following two years.

“We see the update slightly on the positive side. The increase of 2016 hedges and the further cut in exploration expenditures are good defensive measures,” said analysts at Oriel Securities, who recommend buying the shares.

Tullow, Britain’s fourth- largest oil and gas company, is reviewing how it can further reduce operational expenses, which will include a cut in its 2,000-strong headcount. Its key new production asset, the TEN oil field in Ghana, is on track for a mid-2016 start-up.