Tullow Oil plc, the independent oil and gas exploration and production group (“Group”), announces its Full Year Results for the year ended 31 December 2020.
Rahul Dhir, Chief Executive Officer, Tullow Oil plc, commented today:
“After a year of significant change for Tullow, we are now executing a robust, cash generative business plan which is focused on our most productive assets. We have transformed our cost base, implemented rigorous capital discipline and are well placed to benefit from higher oil prices. We will start a multi-year, multi-well drilling programme in Ghana next month to deliver sustainable and profitable production growth. Our self-help initiatives will deliver c.$1 billion, including over $700 million from asset sales in the past year. Strong business
delivery, increased liquidity and improving commodity prices support constructive refinancing discussions. Importantly, we are also announcing today that we intend to be Net Zero by 2030 as part of our commitment to sustainability. This commitment is in line with our desire to work closely with Host Communities and Governments and our investors to deliver a long-term and sustainable business.”
2020 FULL YEAR RESULTS SUMMARY
• Group working interest production averaged 74,900 bopd, in line with expectations
• Revenue of $1,396 million; gross profit of $403 million; loss after tax of $1,222 million
• Loss after tax driven by non-cash exploration write-offs and impairments totalling $1,237 million pre-tax
• Underlying operating cash flow of $598 million2 and pre-financing cash flow of $625 million2
• Capital and decommissioning expenditure were $288 million2 and $58 million respectively
• Net debt at year-end of c.$2.4 billion2; gearing of 3.0x2 net debt/EBITDAX; headroom and free cash of c.$1.1 billion
• Strong operational performance in Ghana; both FPSOs delivered in excess of 95% uptime during the year
• $575 million Uganda asset sale to Total completed in November 2020; $75 million contingent payment expected in 2021
LONG TERM BUSINESS PLAN1
• 10-year business plan presented at a Capital Markets Day on 25 November 2020 (CMD) to deliver material value and cash flow
• Business plan to generate c.$7 billion underlying operating cash flow and c.$4 billion pre-financing cash flow @ $55/bbl
• Material upside to oil price with business plan generating an additional $1.5 billion of pre-financing cash flow @ $65/bbl
• Over 90% of capital to focus on West African producing assets; options being worked to unlock value in Kenya and South America
• Cost focus is delivering annual savings of >$125 million through 53% headcount reduction, outsourcing and other efficiencies
• A strong foundation has been created to address near-term debt maturities and reduce gearing to 1-2x net debt/EBITDAX
• 2P reserves increased to 260 mmboe representing a 2020 reserves replacement ratio of c.160%, underpinning the business plan
• Group working interest oil production year-to-date in line with expectations; full year guidance of 60,000 – 66,000 bopd
• Underlying operating cash flow and pre-financing cash flow expected to be c.$0.5 billion and c.$0.2 billion respectively at $50/bbl
• Every $10/bbl increase in the oil price delivers c.$100 million incremental pre-financing cash flow up to $75/bbl
• Capex of c.$265 million; decommissioning of c.$100 million; Ghana drilling programme with four wells in 2021 to start in April
• Sale of interests in Equatorial Guinea and Dussafu in Gabon for up to $180 million agreed; completion expected in H1
• Suriname exploration well result expected early in Q2; focused on prospect maturation across the exploration portfolio
• In Kenya, a comprehensive review of the development concept is being completed to assess future strategic options
• The Tullow Board has committed to the Group becoming Net Zero on its Scope 1 and 2 emissions by 2030
Tullow has been reviewing its business plan and operating strategy with its creditors and their advisers. The plan is expected to generate material cash flow and create a solid foundation to address near-term debt maturities. Tullow’s low-cost asset base is leveraged to oil price upside. As part of the ongoing refinancing discussions, Tullow has now received approval for a new debt capacity amount under the Reserve Based Lending facility (“RBL”) of $1.7 billion. With this new debt capacity agreed, Tullow has liquidity headroom and free cash of c.$0.9 billion. The combination of strong business delivery, increased liquidity, recent asset sales and higher commodity prices is providing a positive impetus to constructive discussions with creditors. The Group is confident that a mutually satisfactory agreement on debt refinancing can be reached in the first half of this year.
Production, Reserves and Resources
In 2020, Tullow’s West Africa oil assets performed in line with expectations delivering average working interest oil production of 74,900 bopd. In 2021, working interest oil production is expected to average between 60,000 and 66,000 bopd. This forecast will be adjusted for the sales of the Equatorial Guinea and Dussafu assets once these transactions complete. As laid out at the Group’s CMD, investment focused on the Group’s cash generative producing assets in West Africa is expected to increase production in 2022 and
sustain it for the longer term.
Tullow’s audited 2P reserves have increased from 243 mmboe at the end of 2019 to 260 mmboe at the end of 2020. Based on 27 mmboe of 2020 production, this represents an organic reserves replacement ratio of c.160%, underpinning the business plan presented at the CMD. This was largely driven by a 31.5 mmboe increase at Jubilee following improved field performance and the acceleration of development projects in the new plan. Tullow’s audited 2C resources decreased from 1,102 mmboe to 640 mmboe, largely resulting from the Uganda asset sale.
Tullow has committed to becoming a Net Zero Company by 2030 on its Scope 1 and 2 emissions through a combination of decarbonising its operated assets in Ghana and pursuing a nature-based carbon removal programme. Investment in decarbonization projects over the next three years will result in an increase in the gas handling capacity on Jubilee and enable process modifications on TEN, which will also put the Group on track to eliminate routine flaring in Ghana by 2025. To offset the residual difficult-to-abate
carbon emissions, work is under way to identify nature-based carbon removal projects, such as reforestation, afforestation and conservation that Tullow will invest in to achieve its Net Zero ambition by 2030. We will also seek to align our carbon offset strategy with government priorities, emerging regulation on Article 6 of the Paris Agreement as well as our Shared Prosperity strategy, focused on creating socio-economic opportunities for our host communities.
The effects of the COVID-19 pandemic on our operations have been managed safely across the business with no impact on Ghana production. This has been achieved in close cooperation with the Government of Ghana who have enabled effective testing and quarantine measures to be put in place. However, this increased the net cost of operations by c.$10 million in 2020.
Both fields in Ghana performed in line with expectations in 2020, with the Jubilee field averaging 83,600 bopd gross (net: 29,500 bopd) and the TEN field averaging 48,700 bopd gross (net: 23,000 bopd). This production performance was supported by increased and sustained gas offtake nominations from the Government of Ghana, approval from the Ministry of Energy to increase flaring, higher than forecast facility uptime of over 95% at both FPSOs and improved well optimisation and water injection facility performance on the Jubilee FPSO.
To deliver an operational turnaround for the Ghana assets starting in 2020, key areas of focus have been asset integrity, process safety, maintenance and reliability. Gas offtake and water injection on Jubilee have been an important part of the strategy to address the decline in production in the absence of sustained drilling. The engineering work to increase redundancy and reliability has resulted in record levels of water injection with rates now in excess of 200kbwpd, despite a failure in a water injection riser in November 2020.
Sustained water injection helps support reservoir pressure and improves overall sweep efficiency. Good progress has also been made on gas offtake. Onshore gas demand is stabilising, facility reliability has improved and there is greater alignment with the Government of Ghana on projected offtake. Overall this has resulted in current offtake levels of c.125 mmscfd. Gas processing and water injection capacities are both expected to be steadily enhanced through 2021 and beyond to deliver long-term stable production.
In consultation with the Ghana joint venture partners and supported by expert advisors, a comprehensive review of the investment and production optimisation plans for Jubilee and TEN was conducted in the second half of 2020. The resulting plan was presented at the CMD and demonstrated the substantial potential of the Ghana portfolio given its large resource base and extensive infrastructure in place. It showed that, managed with a rigorous focus on costs and capital discipline, these assets have the potential to generate material cash flow over the next decade and deliver significant value for Ghana and investors.
The Maersk Venturer drillship has been contracted to start a multi-well programme which is envisaged to be for a minimum period of four years. The rig has arrived in Ghanaian waters and is scheduled to commence drilling in April. The same rig worked on the previous drilling programme in Ghana, but the contract was terminated due to the oil price impacts of the COVID-19 pandemic. The drilling hiatus, along with historical underinvestment has had a negative impact on 2021 production. In 2021, the rig is expected to drill and complete four wells in total, consisting of two Jubilee production wells, one Jubilee water injector well and one TEN gas injector well to provide pressure support to two Ntomme oil production wells. This well campaign is expected to begin to offset nearterm production decline and further wells in 2022 will see production materially recover and be sustained for the long term. This
drilling programme incorporates lessons learned from the previous programme and is targeting a 20% reduction in drilling costs through simplified well designs, improved rig reliability and supply chain savings.
The final phase of the Jubilee Turret Remediation Project was the installation of a Catenary Anchor Leg Mooring (CALM) buoy to assist with offloading. The CALM buoy arrived in Ghana early in 2020 and following a series of delays, related to the impacts of COVID-19 and some equipment issues, the buoy and one of two offloading lines were installed at the end of 2020 and fully commissioned in early 2021. The tanker support vessels on contract since 2016 have now been released resulting in anticipated operating expense
savings of $60 million (gross) per annum going forwards. Options for the potential need for and installation of a second offloading line are being considered.
Production from Tullow’s non-operated portfolio averaged 22,400 bopd in 2020. Overall production in the first half of 2020 was stable at close to 24,000 bopd. However, in August 2020, the Simba field was required to be shut in to comply with the Gabon Government’s OPEC+ quota. The field was shut-in for a total of two months having an annualised impact on Group production of c. 1,000 bopd.
In February 2021, Tullow announced an agreement to sell its entire interests in Equatorial Guinea and the Dussafu assets in Gabon to Panoro Energy ASA (Panoro) for up to $180 million. These value accretive transactions will strengthen the balance sheet and enable the Group to focus on less capital intensive, higher margin assets elsewhere in the West Africa portfolio. The deal, with an effective date of 1 July 2020, is expected to complete in the first half of 2021 and will represent the sale of c.6,000 bopd and c.20 million barrels of 2P reserves.
In mid-January 2021, following a major incident aboard the CNR operated Espoir field FPSO in Côte d’Ivoire, production was shut in for approximately four weeks. Production is now returning to full capacity.
Asset removal and sea-bed clearance activities in Tullow-operated licences in the UK North Sea were completed in the fourth quarter of 2020. Final surveys are planned in order to close out the operated decommissioning programme this year. The Group’s nonoperated decommissioning activities are ongoing and are expected to continue through to 2025.
In Mauritania, decommissioning of the Chinguetti field wells was suspended from March 2020 to January 2021, following the Government’s decision to close the borders due to COVID-19. Planning and engineering for the decommissioning in Tullow-operated licences at the Banda and Tiof fields is in progress with operations expected to commence in the fourth quarter of 2021, subject to Government approval. The overall Mauritania decommissioning programme, scheduled to complete in 2022, is however anticipated to increase in cost by c.$30 million over the next two years, an increase of $15 million since the CMD, due to COVID-related costs and a new requirement for increased levels of seabed clearance.
In aggregate, the Group’s decommissioning expenditure is forecast to be c.$100 million per annum for 2021 and 2022, decreasing to less than $20 million per annum for the subsequent three years.
Throughout 2020, Tullow worked closely with its joint venture partners to progress the full field development plan. In August 2020, Force Majeure notices that had applied since May 2020 were withdrawn by Tullow and the joint venture partners. In September 2020, the Government of Kenya agreed to an initial extension for the 10BB and 13T licence blocks until 31 December 2020 and in December 2020, following approval of the 2021 Work Programme and Budget, granted a full extension until 31 December 2021 by which date
the Group is required to submit a Field Development Plan.
At the CMD, Tullow announced a joint decision to re-assess the development plan and design a project that is economic at low oil prices whilst preserving the phased development concept. Tullow and its joint venture partners expect to complete a revised assessment of the project by the second quarter of 2021.
During 2020, the Early Oil Pilot Scheme (EOPS) successfully completed two years of production and all the required reservoir and production data gathering was completed as planned. Tullow and the joint venture partners then closed down EOPS and demobilisation of all rental equipment was completed. The reservoir and production data gathered during EOPS is now being used in redesigning the full field development concept. EOPS production of more than 350,000 barrels of oil from the Ngamia and Amosing fields provided six months' sustained rate and pressure data. The data confirms reservoir quality and continuity in both fields, enabling the Group to optimise plans to focus on the most productive wells at the crest of the fields, leading to improved rates per well and refined injector/producer patterns. The impact of this on plateau rates and recoverable resources is being assessed.
In parallel, the joint venture partners are also working closely with the Government of Kenya on securing approval of the Environmental and Social Impact Assessments and finalizing the commercial framework for the project.
Separately, the farm down process was suspended in mid-2020 to allow time for the joint venture partners to complete their comprehensive review of the development concept, following which Tullow will assess its strategic options.
On 23 April 2020, Tullow agreed the sale of its assets in Uganda to Total for $500 million in cash on completion plus $75 million in cash following the Final Investment Decision (FID) and incremental post first oil contingent payments linked to oil prices over $62/bbl.
On 28 May 2020 CNOOC Uganda Limited informed both Tullow and Total that it had elected not to exercise its pre-emption rights.
On 18 June 2020 Tullow published the shareholder circular relating to the transaction and on 15 July 2020 a General Meeting was held, at which the transaction received approval with over 99 per cent of the 56 per cent votes cast in favour.
On 6 August 2020 the Government of Uganda provided their consent to the transfer of operatorship from Tullow to Total and on 21 October 2020, Tullow announced that the Government of Uganda and the Ugandan Revenue Authority had executed a binding Tax Agreement that reflected the pre-agreed principles on the tax treatment of the sale of Tullow’s Ugandan assets to Total.
The Ugandan Minister of Energy and Mineral Development also approved the transfer of Tullow’s interests to Total and the transfer of operatorship for Block 2. Consequently, the sale of the Uganda assets to Total completed on 10 November 2020 with $500 million consideration received on the same day.
Based on recent disclosures from Total at their Full Year results, Tullow expects FID for the Lake Albert Development to be taken this year which would trigger the $75 million payment to Tullow.
At its CMD, Tullow stated that its focus in exploration was twofold. First, Tullow’s exploration team will fully evaluate the prospective net risked resources of 900 million barrels of oil equivalent in emerging basins in Suriname, Guyana, Argentina, Namibia and Côte d’Ivoire. Secondly, the team will work to support Tullow’s established producing operations in West Africa through near-field and infrastructure-led exploration.
In 2020, the Group withdrew from its exploration licences in Jamaica and the Comoros Islands and significantly reduced its footprint in onshore Côte d’Ivoire and Peru.
In January 2020, Tullow drilled the Carapa-1 well in the Kanuku licence, offshore Guyana. Although the well was uncommercial on a standalone basis, the result extended the prolific Cretaceous light oil play into the Group’s Guyana acreage, across both the Kanuku and Orinduik blocks. Tullow is now working with its joint venture partners on the overall prospect inventory and developing plans to unlock value from this acreage.
In February 2020, Tullow drilled the unsuccessful Marina-1 well in the Z-38 licence offshore Peru, which encountered only light gas shows and Tullow is now exiting this licence.
In Suriname, the Goliathberg-Voltzberg North well in Block 47 is drilling currently and is targeting two prospective intervals in a Cretaceous turbidite play in approximately 1,900 metres of water. The well is being drilled by the Stena Forth drillship and a result is expected in the second quarter of 2021.
A multi-client seismic acquisition in Argentina commenced in the fourth quarter of 2019 over the Tullow-operated MLO 114 and 119 licenses but was suspended in May 2020. This campaign re-started in late 2020 and is due to complete by the end of the first quarter of this year.