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This is why the Tullow Oil share price has sunk 11%!

Image source: Getty Images.

The sell-off on UK share markets intensified in Wednesday afternoon business. The FTSE 100 dropped 1.3% from Tuesday night’s close. At just over 6,567 points, Britain’s blue-chip index closed Wednesday at its cheapest since trading first kicked off in 2021 after the Christmas break. Still, this drop is quite meagre compared to the fall that constituent Tullow Oil (LSE: TLW) experienced in mid-week business.

This small-cap closed down nearly 11% from Tuesday at 27.91p per share. Earlier on Wednesday it was trading at its cheapest since late November.

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Tullow’s share price hasn’t been helped by a fresh drop in oil prices today. According to the Brent benchmark, barrels are now valued at $55.50, down around 30 cents on the day. But the exodus from this UK oil share was chiefly prompted by the release of full-year financials.

Profits crashed in 2020

In its latest update, Tullow estimated that revenues in 2020 fell to $1.4bn as oil prices reversed. This is down from turnover of $1.7bn recorded a year earlier. Back in 2019, the UK share reported a realised oil price of $62.40 a barrel versus a price of $50.80 last year (including hedge receipts worth around $200m).

As a consequence, Tullow said that full-year gross profit for 2020 would clock in at around $400m. By comparison profits came in at $759m in 2019.

In better news, though, Tullow announced a significant improvement in its balance sheet strength. Net debt dropped to around $2.4bn as of December 30, it said. This is down from $2.8bn at the end of 2019.  Debt levels were reduced by $430m worth of free cash flow and the $500m sale of assets in Uganda.

Oil pipes in an oil field

Tullow’s production tipped to tank

Tullow had more bad news though. The business — which operates more than a dozen oil assets across Africa and South America — announced that it would produce between 60,000 and 66,000 barrels of oil per day in 2021.

The company said that “this forecast reflects the drilling hiatus in 2020, a planned shutdown in September on Jubilee and deferred development drilling on Simba in Gabon”. By comparison the driller hauled 74,900 barrels of the black stuff out of the ground each day last year.

The small-cap share reckons that daily average oil production will come in at 63,000 barrels this year. This is chiefly because Tullow estimates that combined full-year production from its TEN and Jubilee fields in Ghana will fall by 23% year-on-year. Average daily production from these assets is pegged at 40,500 barrels for 2021.

In other news, Tullow said that talks with its lenders over debt refinancing options had been extended. Discussions over its reserve base lending facility, which were due to conclude this month, have been extended by up to one month to “allow for additional time to review the [new] business plan and operating strategy,” the company explained.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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