Tullow Oil plc, the independent oil and gas exploration and production Group, announces its results for the year ended 31 December 2011. 2011 was a very good year for Tullow. Industry leading exploration success continued with the opening of a major new basin offshore French Guiana as well as further discoveries in Africa. The Group’s financial performance has also been strong with record results for the year based on a 35% increase in production and significantly higher commodity prices helping to deliver a profit after tax increase of 670% to $689 million. Since year-end, Tullow has completed the $2.9 billion farm down in Uganda. Tullow now has a strong balance sheet providing financial flexibility and a solid foundation for future growth.
Commenting, Aidan Heavey, Chief Executive, said: “Record results in 2011 and the $2.9 billion farm down to CNOOC and Total in Uganda are further landmarks in Tullow’s evolution. In the coming year, we will continue to execute our industry-leading exploration programme, appraise major discoveries and invest in key development projects in Ghana and Uganda. Tullow now has a very strong balance sheet and increased cash flow, which gives us real financial flexibility and a firm foundation for further growth. With many opportunities for growth, 2012 promises to be another excellent year for Tullow.”
Material production growth and world class development in Ghana
In 2011, Group working interest production increased 35% to 78,200 boepd. While there was a strong performance
from the Jubilee production facilities overall, with average FPSO uptime of over 95%, productivity issues were
experienced with some of the Jubilee wells related to problems with the original well completion design. The intention
is to use 2012 to resolve these issues and a remedial work programme is already underway to rebuild the production
rate towards facility capacity and ensure that plateau production is delivered in 2013. Recoverable resource estimates are unchanged and the Group remains focused on the field’s long-term upside potential. Phase 1A development of the Jubilee field was sanctioned in January 2012 and drilling of the first production well commenced on schedule in February 2012. This development will be conducted over an 18 month period and the total cost is expected to be approximately $1.1 billion. In 2012, the Group expects to deliver total net production of 78,000 to 86,000 boepd.
During 2011, good progress was also made in appraising the TEN discoveries in Ghana with the highly successful
Ntomme-2A discovery reinforcing the TEN resource base. In February 2012, this was supported by the flow testing of
the Owo-1 well which produced at a combined rate of approximately 20,000 bopd giving confidence in the ultimate
commerciality of the field. The engineering design of this development, which will consist of an FPSO and major subsea infrastructure, is progressing and a plan of development is expected to be submitted in the third quarter of 2012, with first oil forecast 30 months after approval.
Active portfolio management and new strategic partnerships
On 30 June 2011, Tullow completed the acquisition of Nuon E&P from the Vattenfall Group for a cash consideration of €300 million ($432 million). This added a portfolio of 25 licences and over 30 producing fields as well as various
development and exploration opportunities, together with ownership of key infrastructure. On 25 July 2011, Tullow
completed the acquisition of the Ghanaian interests of EO Group Limited (EO) for a combined cash and share
consideration of $305 million. On 29 December 2011, Tullow, on behalf of itself and the other Jubilee Partners,
acquired ownership of the Kwame Nkrumah FPSO from Modec which reflects the Partners’ belief that ownership of the vessel will maximise commercial value and operational flexibility.
In January 2012, the Group signed a non-binding Memorandum of Understanding with Shell to explore in select
frontier basins and geological plays within the Atlantic Basin. This partnership combines the knowledge base and
specialist capabilities of both companies to allow more effective de-risking in areas with the potential to deliver
exceptional results. In February 2012, Tullow signed two new Production Sharing Agreements with the Government of Uganda. This was followed by the completion of the farm-down of two thirds of its Ugandan licences to CNOOC Limited and Total for a consideration of $2.9 billion. The Group is now ready with its partners to embark on the development of Uganda’s oil industry. First oil could be as early as 2014, with material production volumes likely to be from 2016.
Tullow has interests in two licences offshore Ghana, Deepwater Tano and West Cape Three Points. 2011 activity
included the ramp-up of production from the Jubilee field, further appraisal drilling which confirmed Enyenra as a
major light oil field, and additional exploration success in the Ntomme-2A, Teak-1, 2 and 3A wells. Production
operations on the FPSO Kwame Nkrumah continued to perform well with a low rate of unplanned shut-downs and no
significant safety or environmental issues. Activity in 2012 will include the start of the Jubilee Phase 1A development
and further appraisal and development activities on the TEN project.
Jubilee field Phase 1 & 1A developments
The start of 2011 saw the first lifting of Jubilee crude oil from the FPSO Kwame Nkrumah and since then, over 30
million barrels of oil have been produced and 30 cargoes have been safely exported. Following the strong operating
performance of the Kwame Nkrumah FPSO, Tullow, on behalf of the Jubilee Partners, acquired the FPSO from Modec on 29 December 2011. This acquisition will enable the Jubilee Partners to maximise the FPSO’s commercial value and operational efficiency whilst Modec will continue to provide operations and maintenance services.
The Jubilee Phase 1 development was completed in October 2011 when the last of the initial 17 wells were drilled,
completed and brought on stream. Also at this time, the water injection design capacity for the FPSO was reached,
with rates over 235,000 bwpd being injected into the reservoirs and pressure support being seen across the field. By
the end of 2011, gas re-injection reached 80 mmscfd and gas flaring was reduced to minimal levels.
In 2011, gross production from the Jubilee field averaged 66,000 bopd (2010: 3,200 bopd), reaching 88,000 bopd
before declining to approximately 70,000 bopd at the end of the year. However, production from the field was below
expectations due to reduced productivity in a number of wells related to problems with the original well completion
design. The issue is not expected to impact the level of field reserves or resources and a remedial work programme is
underway to regain well productivity lost to date. This work involved the sidetracking of the J?07 production well using a new completion design which is now on?stream and being closely monitored. Further remedial work including acid stimulations and additional recompletions are planned for 2012.
The next phase of development for the Jubilee field is Phase 1A. Following approval gained from the Government of
Ghana in early 2012, development started in February 2012, with the spudding of the first production well, and will
continue over the next 18 months. The development is anticipated to cost approximately $1.1 billion and will consist of eight new wells; five producers, three additional water injectors and the expansion of the subsea network. The first of the Phase 1A wells is expected to come on stream from late in the second quarter of 2012.
The combination of the Phase 1 remedial work and the additional Phase 1A wells coming onstream, will enable
production to resume its build up towards the FPSO design capacity of 120,000 bopd. Production is expected to
average between 70,000 and 90,000 bopd in 2012, depending on the well performance achieved from the Phase 1
recovery programme and the execution schedule of the Phase 1A wells.
Tweneboa-Enyenra-Ntomme (TEN) Cluster Development
During 2011, significant progress was made in the programme of appraisal drilling and flow testing of the Tweneboa,
Enyenra and Ntomme fields, collectively known as TEN. Tullow anticipates developing the three accumulations in an integrated subsea cluster development scheme using a single FPSO.
The appraisal programme commenced in January 2011 with the drilling of the Tweneboa-3 well comprising two
deviated exploratory boreholes drilled into the Ntomme prospect which was proven to be a material and separate gascondensate accumulation. Appraisal of the Ntomme accumulation commenced in early 2012 with the drilling of the Ntomme-2A well, located over four kilometres south of Tweneboa-3. This exploratory appraisal well successfully
discovered high quality oil bearing reservoirs, below the Ntomme gas-condensate accumulation, reinforcing the overall TEN resource base potential.
Further appraisal drilling on the Enyenra field has continued during 2011 including the re-drill of the Owo-1 discovery
well in December 2011, to allow testing and coring. To determine the level of reservoir connectivity and well
deliverability, the well was flow tested. The lower channel was tested at a rate of approximately 10,000 bopd, and a
commingled rate for the two upper channels was approximately 12,000 bopd. The pressure response will be
monitored by pressure gauges deployed in the Enyenra-2A and Enyenra-3A wells, located to the south and north
respectively. The Enyenra-4A well is currently drilling to determine the southern extent of the Enyenra field.
The TEN Development Project has made significant progress since the Front End Engineering & Design (FEED)
commenced in August 2011. A design competition has commenced with three FPSO contractors and a local project
office has been set up in Singapore to support this activity. Subsea FEED is nearing completion and tenders for this
work are being prepared.
Tullow expects to submit the TEN Plan of Development (PoD) and a formal declaration of commerciality to the
Government of Ghana in the third quarter of 2012. This will incorporate the information gained from the FEED work
and the ongoing appraisal programme. First production from the TEN cluster development is anticipated to be
approximately 30 months after government approval of the PoD.
Exploration and Appraisal Activity
In 2011, Tullow continued its exploratory drilling activity in Ghana, drilling the Teak-1, Teak-2, Teak-3, Banda, Akasa-1 and Makore-1 wells in the West Cape Three Points licence, operated by Kosmos. The Teak-1 well drilled in February 2011 encountered a thick tally of oil and gas pay, and the Teak-2 well drilled in March 2011 tested the fault block between the Teak-1 discovery and the Jubilee field, where it penetrated a gas reservoir that may represent a gas cap to the Jubilee field. The Teak-3 well was drilled in November 2011 and confirmed the northern extension of the Teak discovery, across a major fault. Plans are in place for the Teak-4 appraisal well and flow testing in 2012, the outcome of which will guide future development plans.
The Banda exploration well in the east of the West Cape Three Points block was drilled in June 2011 to explore the
previously untargeted Cenomanian play. The well found very thick but low porosity Cenomanian sandstones with only three metres of oil pay. The Makore-1 exploration well was drilled in July 2011 targeting a discrete Jubilee-type
reservoir. The well found excellent quality sandstones which were unfortunately water-bearing at this location. These
results have been integrated into Tullow’s regional geological model to enable better targeting of these plays
elsewhere in Tullow’s Equatorial Atlantic acreage.
In August 2011, the Akasa-1 well (previously known as Dahoma up-dip) was drilled and made a light oil discovery. The Turonian reservoirs encountered are similar in age to those discovered at the Jubilee field and the oil samples
recovered from the Akasa-1 well indicate 38 degrees API gravity. The West Cape Three Points operator, Kosmos,
remains in discussions with the Government of Ghana in relation to further appraisal and development plans for the
Mahogany, Teak, Banda and Akasa discoveries.
In the Deepwater Tano licence operated by Tullow, a set of attractive remaining prospects have been identified and
exploration activity will be completed before the end of the first quarter of 2013. Three exploration wells are expected
to be drilled on the block and potential prospects include: Wawa?1 that will target hydrocarbons which may have
moved to a trap up-dip from the TEN oil and gas-condensate fields; Sapele-1, immediately south of the Jubilee field,
will test a prospective turbidite lobe and Tweneboa Deep-1, a material prospect below the TEN fields.
EO Group Ghanaian interests acquisition and equity redetermination
On 26 May 2011, Tullow entered into a conditional agreement to acquire the Ghanaian interests of EO Group Limited (EO) for a combined share and cash consideration of $305 million. This acquisition increased Tullow’s interest in the West Cape Three Points licence offshore Ghana by 3.5% to 26.4% and increased the Group’s interest in the Jubilee field by 1.75% to 36.5%. The acquisition was completed on 25 July 2011.
In October 2011 the partnership completed the first equity redetermination of the Jubilee Unit Area (JUA) and the net
result is that Tullow’s working interest in the JUA has reduced slightly from 36.5% to 35.5% which became effective
from 1 December 2011.