Tullow Oil’s shift to a more conservative stance is paying off, it seems, with debt down and cash flow on the rise.
The company opted, under CEO Rahul Dhir, to focus on Ghana and reduce much of its exploration interests. It is increasing spending in Ghana this year, with the aim of driving new production in 2023.
The plan is “progressing well with significant improvements in safety, operating efficiency and drilling performance”, Dhir said this morning in a trading statement.
“Our plans in Ghana, where we are in the process of increasing our stakes in both the Jubilee and TEN fields, will position us to deliver the free cash flow to reduce gearing to less than 1.5x by 2025,” the CEO said.
“Elsewhere, our Gabon near-field non-operated exploration opportunities, our revised Kenya development project and the Beebei-Potaro commitment well in Guyana also have the potential to be significant value drivers for Tullow.”
Tullow’s production in 2021 was 59,200 barrels of oil equivalent per day, in line with its guidance.
It expects underlying cash flow for the year to be around $700mn, with free cash flow of $250mn.
Revenue in 2021 is expected to be around $1.3 billion, based on a realised oil price of $63 per barrel. Capital expenditure was $265 million, while decommissioning spend was $70mn. The company cut net debt to $2.1bn as of the end of the year, from $2.4bn at the start.
Ghana is at the heart of the company’s operations. Restarting drilling in April, it has completed four new wells and a workover.
This year, Tullow expects production of 55,000-61,000 boepd. The company is working to boost its Ghanaian interests through the acquisition of stakes from Occidental Petroleum, which should add another 5,000 boepd.
Capital expenditure will be around $350mn this year, of which $270mn will go into Ghana. Decommissioning will cost $100mn.
In Ghana, it is investing in infrastructure to boost output from the Jubilee North East and South East areas. This will provide “meaningful growth” as they start up in 2023 and beyond.
Oil production from Jubilee was 26,600 bpd net in 2021, higher than expected. In 2022, this is expected to rise to 28,000-30,000 bpd. However, natural decline at TEN brought volumes down from this Ghanaian field, to 15,500 bpd. Tullow said TEN will continue its decline in 2022, with net production of 11,000-12,000 bpd.
Modec currently operates the floating production, storage and offloading (FPSO) vessel on Jubilee, but its contract will end this year. At this point, Tullow said it plans to take over operations and maintenance.
This year, Tullow plans to drill two strategic development wells on Ntomme and one on Enyenra, part of the TEN complex. These should start up in 2023.
Broadly, the company has cut its exploration plans, including all its areas in Suriname and Peru. At the beginning of this year, Tullow left Namibia’s PEL 90.
The exception to this is in Cote d’Ivoire. Here, Tullow and state-owned Petroci are moving into the second exploration phase. This block is adjacent to the TEN fields over the maritime border in Ghana.
Furthermore, in the second quarter of this year, the company is involved in the Beebei-Potaro well planned in Guyana.