Tullow Oil takes $2.2bn hit from oil price collapse

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Image caption,
Tullow Oil is slashing oil exploration projects which could include this French Guiana well

Tullow Oil is to write off $2.2bn (£1.45bn) as a direct result of the oil price collapse.

And it has slashed its exploration budget for next year to $200m from around $1bn at the start of 2014.

It is the latest in a raft of cutbacks by oil companies as a result of the oil price falling to below $50.

BP said on Thursday it was shedding 200 staff jobs and 100 contractors in its North Sea operations .

On Wednesday, Shell said it was dropping plans to build one of the world's biggest petrochemical plants, a $6.5bn project with Qatar Petroleum.

And Premier Oil announced it was reducing its exploration spending in 2015 by 40% and writing off $300m.

Aidan Heavey, Tullow Oil chief executive, said: "In late 2014, we materially reduced our 2015 exploration capital expenditure and today announce a further cut to this expenditure to $200 million.

"We have re-allocated our future capital to focus on delivering high-margin oil production in West Africa which will grow significantly to around 100,000 barrels a day... by the end of 2016 and will generate stable, long-term cash flows for the business.

"The reduced exploration programme will predominately focus on a number of high-impact, low-cost exploration opportunities in East Africa."

Tullow Oil shares have fallen more than 10% since the start of the year.

More charges

Tullow expects to write off $400m in its Norwegian, Mauritanian and Ethiopian exploration businesses, and $1.2bn relating to drilling and licensing costs going back several years.

It has also reviewed all its assets in the light of the fall in commodity prices and expects to record an "impairment charge" of $600m, including a charge against the value of its 2013 Norwegian acquisition, Spring Energy, for $372m.

Tullow Oil has said it is also likely to take a further charge of $500m to cover losses incurred in selling part of its Ugandan operations to Total and Chinese state-owned CNOOC.

It expects to make a gross profit of $600m in 2014, down from $1.4bn in 2013. Revenues are expected to be $2.2bn, down from $2.6bn.

The group's full results will be published on 11 February.

It said that the lower revenues were due not only to lower oil prices but also the sale of many of its European and Asian assets.

Oil prices are at their lowest in about six years, after plummeting 60% in the last six months from more than $100 a barrel.