The new Tullow Oil CEO must undertake difficult wholescale reform of company if fortunes are to recover.

Such is the extent of problems at the troubled company that whoever the next CEO will be needs to examine the culture of the company from the top to bottom.

Since the departure of CEO Paul McDade and exploration chief Angus McCoss, a body of opinion from analysts alleging a poor company culture has grown.

This, combined with poor decision making, means getting the company back on track will be extremely difficult. Completing such a task demands examination of how the company works at every stage.

Scale of problems shows depth of change needed

Output next year is predicted at between 70,000 and 80,000 barrels per day – a long way short of the 87,000 per day that was originally expected in 2018.

Consequently the values of assets held by the company have been substantially diluted. Restoring confidence in the oil fields operated by Tullow is essential if their supposedly healthy financial position is to be held.

Doing so will be far from easy. The markets must be assured that mistakes – such as misidentifying the oil contained in a recently discovered field in Guyana as light oil rather than heavy oil – will not be repeated.

Reforming the culture at the company is the best means of bringing about a recovery. Reports leaked to the industry press describe ‘a culture of fear’, underlining the scale of change that is likely required.

Change must happen swiftly to avoid sale of whole company

Leading figures at Tullow claim the company debt pile is coming down and will continue to do so. However, that is dependent on the oil price staying above $60 per barrel.

But if the price drops the company could end up in even worse trouble than at present. This illustrates the need for a swift and radical overhaul of the business starting from the top.

The company has been attempting to sell assets including licenses in Uganda and Kenya to reduce debt. Bringing about a sale, however, has proven troublesome. A lack of interest from the markets is not about to dissipate, either.

Were the oil price to drop below $60 per barrel, reductions in the price of the assets would follow. This makes the job of bringing about financial security harder still.

The recent steep drop in the share price that slashed the company value by two-thirds would be compounded and what little confidence remaining further eroded.

Under such a scenario the sale of the whole company becomes a realistic prospect. Avoiding such a fate demands problems in the internal structure are solved, and fast.