Africa Commodities Oil

Tullow posts strong performance as profit jumps 91%

The firm has however cut its full-year 2019 working-interest oil production guidance to a range of 89,000 to 93,000 barrels per day

Tullow Oil PLC (TLW.LN) recorded a strong performance in the first half of 2019 reporting a 91.5 per cent jump in profit, as it continued with its investments in Africa’s oil space.

Profit after tax for the period ended June 30, closed at US$103.2 million up from US$53.9 million in a corresponding period last year.

This is despite a drop in sales revenue which closed the period under review at US$872.3 million; compared with US$905.1 million it recorded a year-earlier.

Operating profit however went up to US$388 million compared to US$300 million in H1 of 2018 with the British oil firm reducing its net debt to US$2.9 billion from US$3.1 billion in June last year.

“Tullow has delivered a good set of financial results in the first half of 2019, with further reductions in net debt and gearing underpinned by strong cash flow generation from our assets despite the lower than expected production, “Chief Financial Officer Les Wood said during this week’s results announcement.

“We continue to maintain financial discipline as we allocate our capital, allowing us to confirm our interim 2019 dividend and establish a robust platform for growth,” Wood added.

The firm has however cut its full-year 2019 working-interest oil production guidance to a range of 89,000 to 93,000 barrels per day, citing mechanical issues at one of its wells.

Combined with gas output, the company has projected its full-year production to be in the range of 90,000 to 94,000 barrels of oil equivalent a day.

East Africa operations

The firm which has key operations in Kenya and Uganda has continued to record mixed performances in the region. In Kenya, Full Field Development Joint Venture Partners and the Government of Kenya concluded negotiations around key fiscal and commercial principles for Project Oil Kenya with agreements between the parties documented in Heads of Terms which were signed by the Joint Venture Partners and the Government of Kenya in Nairobi on June 25 2019.

“This represented a material and encouraging step forward which gives all parties confidence that the project will be robust at low oil prices,” the company reported on Wednesday.

The development plan envisages that the Foundation Stage of Project Oil Kenya will include the Amosing, Ngamia and Twiga fields, with a 60,000-80,000 bopd(barrels of oil per day) Central Processing Facility and an export pipeline to Lamu. The infrastructure installed for the foundation stage will be utilised for the development of the remaining oil fields and future oil discoveries in the region, allowing the incremental development of these fields to be completed at a lower unit cost.

In the first half of the year, Front End Engineering Design (FEED) studies for both the upstream and midstream have been finalised.

“These studies, together with recent market soundings, have given the Joint Venture Partners greater confidence in the project’s estimated capital expenditure and construction timetable that is expected to see first oil three years after FID,” the management said.

Upstream and midstream Environmental and Social Impact Assessments (ESIAs) are expected to be submitted to the National Environmental Management Agency by the end of the third quarter 2019. The Government of Kenya, via the National Lands Commission, has gazetted the land required for the upstream development in Turkana and pipeline land surveys by the National Lands Commission began in the first week of July.

An Upstream Water Framework agreement has been drafted by Tullow and submitted to the Government of Kenya for their review. Given this significant progress, the FID of the Development is now targeted for the second half of 2020.

Kenya’s Early Oil Pilot Scheme

The Early Oil Pilot Scheme (EOPS) continues to perform well and the trucking operations, which transport oil from Turkana to Mombasa, are running smoothly, the firm has confirmed. The reservoirs, wells and associated facilities at both Amosing and Ngamia have been performing in line with expectations.

In May 2019, EOPS production was increased from 600 bopd to 2,000 bopd and, to date, over 200,000 barrels of oil have been safely delivered to Mombasa. Tullow expects East Africa’s first export cargo of oil to be sold and lifted in the third quarter of 2019.

Uganda

In Uganda, things look a bit different from Kenya, according to the company’s announcement investors.

A meeting between the CEOs of Tullow, Total and President Museveni was held in January 2019, where principles for the tax treatment of the farm-down to China National Offshore Oil Corporation (CNOOC) and Total were agreed. The Joint Venture Partners have worked to finalise an agreement based on these principles.

However, Tullow and its Joint Venture Partners, have, so far, been unable to finalise this agreement with the government of Uganda.

“We continue to work constructively with our Joint Venture Partners and the government of Uganda to agree a way forward to complete the farm-down and determine the subsequent timing of FID,” the management reported in its financials this week.

Nevertheless, although negotiations continue, Tullow is now also considering all options in pursuing the sale of its interests in Uganda. The Joint Venture Partners continue to target FID for the development project at the end of 2019 with the project’s major technical aspects now completed. The Tilenga Project ESIA has been approved by the National Environment Management Agency and the Kingfisher ESIA public hearing has concluded.

Geotechnical and geophysical surveys for the East Africa pipeline (EACOP) have been completed for the entire route across both Uganda and Tanzania.

“There are ongoing EACOP discussions between the Joint Venture Partners and the Governments of Uganda and Tanzania regarding key commercial agreements which are required prior to FID,” it said.

“Good progress in Kenya has been a highlight of the first half. We have seen how a Joint Venture Partnership working closely and co-operatively with the host government can obtain results. We continue to discuss our farm-down in Uganda with both Joint Venture Partners and the Government and remain optimistic that we can make progress,” Mark MacFarlane, Executive Vice President for East Africa, said.

West Africa

Tullow’s West Africa oil production averaged 88,700 bopd in the first half of 2019. This includes 2,700 bopd of production equivalent insurance payments relating to the Jubilee field which have been realized under Tullow’s Corporate Business Interruption insurance policy. First half 2019 working interest gas production averaged 300 boepd.

Tullow’s 2019 full year working interest oil production forecast, including production-equivalent insurance payments, has however been revised down to 89-93,000 bopd due to mechanical issues experienced completing the Enyenra-14 production well which has not been brought on-stream as planned . Working interest gas production is expected to average around 1,000 boepd, resulting in total Group production guidance for the full year of 90-94,000 boepd.

Ghana

In the first half of the year, the Stena Forth and Maersk Venturer drill ships worked in tandem on the Group’s drilling programme in Ghana and so far this year, Tullow has drilled four wells and completed three wells.

Following the completion of its work programme, the Stena Forth left Ghana in June and is now drilling the Jethro well offshore Guyana. The Maersk Venturer remains in Ghana and is currently completing a Jubilee production well, due on stream in August. The schedule for the remainder of the year is being adjusted following the suspension of the Enyenra-14 well completion.

In the first half of 2019, gross production from the Jubilee field averaged 88,500 bopd (net: 31,400 bopd).

“Production was below expectations due to gas compression constraints during February which have now been resolved,” the firm said.

Tullow’s net production increased to 34,100 bopd with the inclusion of 2,700 bopd of net production-equivalent insurance payments.

The insured period associated with Tullow’s Corporate Business Interruption insurance claim ended in May 2019, three years after cover commenced.

Following the strong performance, the oil company will pay an interim dividend of US$2.35 cents per share, representing a payout of about US$33 million, which is in line with plans to disburse at least US$100 million a year.

Source: The Exchange

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