Tullow is feeling the pinch of falling global oil prices that has seen its share price fall on London Stock Exchange where it is listed.
As a result of falling oil prices, the oil company announced it will cut exploration expenditure to $200m in 2015 from $1bn in 2014.
Global oil prices more than halved since June 2014 and oil companies like BP and Shell have all announced moves to cut costs.
“In late 2014, we materially reduced our 2015 exploration capital expenditure and today announce a further cut to this expenditure to $200 million,” Aiden Harvey, the Tullow Oil chief executive said in the Trading and Operational Update released on Thursday.
The statement went on to read that the “reduced exploration programme will predominately focus on a number of high-impact, low-cost exploration opportunities in East Africa.”
This focus on East Africa, does however exclude plans to exploit new areas in Uganda.
Ultimately, in order to cut costs, Tullow appears to have made a decision it will not apply for the new licenses, at least from what George Cazenove the Head of Media Relations at Tullow said. He replied with a straight “No” when asked whether they’ll participate in the new round of licensing.
The Uganda government last year revealed that a new round of exploration licenses is expected to be issued in 2015.
Tullows operations in Uganda are currently beyond the exploration phase as it waits for issuance production license that will see it start producing oil.
Currently, only 40% of the Albertine area has been explored.
Furthermore in Uganda, Tullow admitted it will provide cover of $500m as it takes the hit for the failure to acquire production licenses as agreed when it sold 66.6% of assets to Total and CNOOC.
“When we sold 66% of our interests in Uganda to CNOOC and Total in 2012, there were certain financial conditions relating reaching the final investment (FID) decision within a certain timeframe Because we are unlikely to reach FID within the timeframe, we are obliged to write off some contingent consideration that we would have received,” Cazenove said
The update from Tullow comes on the heels of talk that the company would downsize to cater for falling prices. The company did not reveal where these cuts with further details expected when they release their financial results.
“…a major internal review of Tullow’s organisation is ongoing which will lead to substantial long-term cost savings and efficiencies across the Group,” the company revealed in the update.
These announcements by Tullow reveal a turbulent year for the oil company that has operated in Uganda since 2004. Tullow had made a name for itself as risk taker by acquiring exploration licenses in areas in Africa ignored by the big oil players.