Tullow oil  projects a positive outlook in kenya in 2020 as it announces results

Tullow oil projects a positive outlook in kenya in 2020 as it announces results

 BY CORRESPONDENT,NAIROBI,12TH MARCH,2020-Good progress on Project Oil Kenya was made in 2019. Front End Engineering Design (FEED) studies for the upstream and midstream parts of the project were finalised, the tendering process for wells is now complete and upstream tendering for Engineering, Procurement and Construction (EPC) has commenced. The midstream Environmental and Social Impact Assessment (ESIA) was submitted to the National Environmental Management Agency (NEMA) in November 2019. The upstream ESIA is now technically complete and publicly available and will be submitted to NEMA in the second quarter of 2020 after final consultation work in Turkana. T

he land acquisition work led by the Government of Kenya for the upstream development has commenced in the field. Progress has been slower on some workstreams such as access rights to land and water and the long-form commercial agreements to be entered with the Government of Kenya. This slow progress means that the target of reaching FID by year-end 2020 becomes more challenging.

In May 2019, the Early Oil Pilot Scheme (EOPS) production reached 2,000 bopd. Production performance tested during EOPS demonstrates that the reservoir remains consistent with expectations, and no further reservoir data is expected to be required to de-risk the project. The first export of oil from East Africa, a cargo of 240,000 barrels, was flagged off from the port of Mombasa by H.E. Uhuru Kenyatta, the President of Kenya in August 2019. Following adverse weather in the fourth quarter of 2019 which caused severe damage to the roads used by the crude export tankers, EOPS was suspended. Trucking operations remain suspended until all roads are repaired to a safe standard.

 

GROUP BUSINESS REVIEW

  • Business Review undertaken covering all aspects of Tullow’s operations and cost base
  • Group being restructured to create an effective and efficient organisation; 35% headcount reduction
  • Dividend suspended and 2020 CAPEX lowered to c.$350 million; c.$200 million of G&A cash cost savings targeted over 3 years
  • Greater Group control of operations and production forecasting through the appointment of Mark MacFarlane as COO
  • Ghana production and sub-surface management centralised in London; new Asset Director hired
  • Areas of potential investment to maintain long-term production and reserve recovery identified at both Jubilee and TEN
  • New Head of Exploration hired; c.45% reduction in exploration budget; disciplined exploration strategy
  • Portfolio management planned to raise in excess of $1 billion of proceeds, further streamline the business and reduce gearing

GROUP 2020 OUTLOOK

  • Group production year-to-date in line with expectations; full-year guidance of 70,000 – 80,000 bopd
  • Jubilee performing well after gas processing facility upgraded, increased gas offtake agreed, and sea-water injection capacity optimised; Nt-09 production well at TEN on-stream in Q2; non-operated West African production in line with expectations
  • Capex of c.$350 million, down c.30% from 2019; exploring options to reduce further if required
  • 2020 free cash flow forecast of $50-$75 million at $50/bbl; free cash flow breakeven of c.$45/bbl
  • 60% of 2020 sales revenue hedged with a floor of $57/bbl; 40% of 2021 sales revenue hedged with the floor of $53/bbl
  • RBL redetermination ongoing; expected c.$1.9 billion debt capacity at the end of March; liquidity of c.$700 million.

    Dorothy Thompson, Executive Chair, Tullow Oil plc, commented today:

    “This has been an intense period for Tullow as we have worked hard on a thorough review of the business which has led to clear conclusions and decisive actions. We are focused on delivering reliable production, lowering our cost base and managing our portfolio to reduce our debt and strengthen our balance sheet. Even with recent events in oil markets, Tullow’s assets remain robust: we are a low-cost African oil producer, with a strong hedging position, substantial reserves that underpin our business and a high potential exploration portfolio.”

     

    2019 FULL YEAR RESULTS SUMMARY

    • Group working interest production averaged 86,800 boepd; capital investment of $490 million
    • Revenue of $1,683 million; gross profit of $759 million; loss after tax of $1,694 million
    • Loss after tax driven by exploration write-offs and impairments totalling c.$2.0 billion including revised Uganda write-off
    • Free cash flow of $355 million; year-end net debt of $2.8 billion; gearing of 2.0x net debt/EBITDAX
    • Commenced exploration campaign in Guyana; Carapa-1 well confirms the extension of Cretaceous play into Tullow’s acreage
    • Continued project progress in Kenya towards FID; first-ever lifting of Kenyan crude
    • Departure of CEO and Exploration Director by mutual agreement following disappointing business performance

     

    Tullow Kenya 2020 Outlook

    • Tullow remains fully committed to Kenya, and the Board has approved the requisite 2020 budget targeting a Final Investment Decision (FID) at the end of 2020.
    • Tullow Kenya will focus Capex on only those critical path items necessary to get the project to FID. Some of the critical path activities towards achieving FID will include submission of the Field Development Plan (FDP), securing Environmental and Social Impact Assessment (ESIA) licences for upstream and midstream, work with the Government to secure access rights to land and water, and project financing among others.
    • Project Oil Kenya (POK) is commercially viable and is underpinned by substantial underlying reserves.
    • There is enough Oil in Kenya and the business fundamentals remain intact: recent independent reserves audits demonstrate that we have a substantial underlying reserves and resources base in East Africa. Throughout 2019, over 95% of the Tullow’s reserves and resources have been independently audited, and the results underpin the quality of the asset base.
    • Tullow Kenya is in the process of farming down some of its equity before FID. Reducing equity is a normal, portfolio management activity. Tullow does not plan to exit Kenya
    • The Early Oil Pilot Scheme (EOPS) remains suspended due to severe damage to roads caused by adverse weather in the fourth quarter of 2019. Trucking remains on hold until all roads are repaired to a safe standard. Work continues with Joint Venture Partners and the Government of Kenya to progress the development project.

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