Tullow Oil announces its Half Year results for the six months ended 30 June 2021.
Rahul Dhir, Chief Executive Officer, Tullow Oil plc, commented today:
“Strong operational performance in the first half of the year and a transformational debt refinancing have put Tullow on a firm footing to deliver our Business Plan. Our West Africa production assets have performed well, and we are narrowing production guidance for 2021 to the upper end of the range. In Kenya, the revised development plan creates a robust project that has the potential to deliver material value to the Government of Kenya and other stakeholders. Through our operations, Tullow continues to deliver Shared Prosperity and to be an engine for economic and social change in the developing economies in which we work.
Furthermore, by targeting Net Zero by 2030 and an emphasis on responsible operations, we are ensuring that the oil and gas resources of our host countries are developed efficiently and safely, whilst minimising our environmental impact.”
2021 FIRST HALF RESULTS SUMMARY
- Group working interest production for the first half of 2021 averaged 61,230 boepd, in line with expectations.
- Good operational progress in Ghana; FPSOs delivering over 98% uptime; sustained increased water injection and gas offtake rates; first new well in drilling programme, J56 producer, came on stream delivering production rates ahead of expectations.
- Progress made on the delivery of Business Plan set out in November 2020, including target to become Net Zero by 2030.
- Revenue of $727 million; gross profit of $321 million; profit after tax of $93 million; underlying operating cash flow of $218 million and free cash flow of $86 million.
- Continued focus on costs results in reduced administrative expenses of $23 million in 1H21, down c.50% year-on-year.
- Capital investment of $101 million; decommissioning costs of $37 million. 1H21 operating costs averaged $12.9/bbl, a year-onyear increase primarily due to lower production and increased costs related to extended COVID-19 operating procedures.
- Net debt at 30 June 2021 of c.$2.3 billion; Gearing of 2.6x net debt/EBITDAX; liquidity headroom and free cash of $0.7 billion.
- Completion of comprehensive debt refinancing with $1.8 billion of five-year Senior Secured Notes issued and a new $500 million
revolving credit facility.
- Completion of Equatorial Guinea and Dussafu Marin permit sales in March and June respectively, receiving $133 million.
- Group working interest production narrowed upwards to 58,000-61,000 boepd following deferral of a Jubilee shut-down into 2022 and an increase in production from Simba in Gabon following acceleration of work into 2H21.
- Full year capital investment and decommissioning spend of c.$260 million and c.$90 million respectively.
- Full year underlying operating cashflow expected to be c.$0.6 billion assuming $60/bbl for the remainder of the year. Post all
costs, Tullow forecasts full year free cash flow of c.$0.1 billion. If the oil price averages $70/bbl in 2H21, this would increase by
- Tullow’s free cash flow guidance includes an expected payment of $75 million from Total which would be triggered if a Final
Investment Decision (FID) for the Lake Albert Development in Uganda occurs before the end of the year. Public announcements suggest good progress is being made in Uganda, with agreements recently in place to launch the Upstream and Pipeline projects, but if FID does not occur in 2021, the $75 million payment is expected in 2022.
STRATEGY & BUSINESS PLAN
2021 is a transition year for Tullow as the Group begins to deliver the 10-year Business Plan presented at its Capital Markets Day
last November. Much has been achieved in the first half of the year and while the start of drilling in Ghana is one of the most tangible examples, the Group has also maintained cost discipline, allocated capital carefully to accelerate high-return projects such as Simba in Gabon and recently submitted a revised draft development plan for Kenya, the culmination of over a year’s in-depth work. The issuance of $1.8 billion of Senior Secured Notes with a $500 million revolving credit facility in May 2021 placed Tullow on a much firmer financial footing and the Group now has a clear runway to invest appropriately in its assets to maximise their value and deliver its cash generative plan.
Over the past few months, Tullow has focused on further refining the plan for the 2021-2025 period with a base case capital expenditure of c.$1.3 to c.$1.5 billion during this period. This expenditure is self-funded and requires no additional borrowing.
Revenues are protected by Tullow’s comprehensive prudent hedging programme and the Group has flexibility to reduce expenditure in the event of a sustained oil price fall to $55/bbl or below.
Overall, from 2021-2025, Tullow’s Business Plan will deliver growth in production, reserves and underlying value, along with material cash flow to support deleveraging which will see the Group reduce its gearing to below 1.5x by 2025.
Maximising value from producing assets
The Jubilee field has c.2 billion barrels of oil initially in place and to date, Tullow has produced less than half of the expected ultimate recovery. Accordingly, given the quality of the field, Jubilee provides a highly profitable investment opportunity over the 2021-2025 period through a combination of infill drilling, facilities expansion, and two sanctioned projects in the eastern part of the field – Jubilee North East and Jubilee South East.
The TEN fields have over 1 billion barrels of oil initially in place and to date, Tullow has produced less than a third of the expected ultimate recovery through the Enyenra and Ntomme fields. Since the 2020 Capital Markets Day, Tullow and its Partners have had the opportunity to deepen their understanding of the TEN area, and now have an improved view of the remaining potential.
Accordingly, the JV Partners have evolved their forward strategy on TEN to concentrate on the biggest and most cost-effective
“pools”, particularly in the Greater Ntomme and Tweneboa (“GNT”) area. Two strategically-positioned wells to be drilled in the nearterm will help better define the overall resource base at TEN, with options to accelerate future development. The Group is also seeking to commercialise the significant non-associated gas resource in the TEN fields.
Tullow’s non-operated production in Gabon and Cote d’Ivoire continue to provide positive cash flow through existing production, infrastructure-led exploration (ILX) and a number of diverse low-risk investment options and projects.
In Kenya, the revised development plan has been commercially, technically and environmentally enhanced. Tullow and its Kenya Joint Venture (JV) Partners are actively seeking a strategic partner(s) for the next stage of the project to develop this discovered resource which has the potential to deliver material value to the Government of Kenya and the JV Partnership, as well as other stakeholders.
Tullow is focusing its exploration expertise on unlocking additional value from our asset base. In Ghana and Côte d’Ivoire, Tullow’s team is maturing prospects around the TEN FPSO and subsea infrastructure as well as in the adjacent block, CI-524. In the emerging basins of Guyana and Argentina, Tullow is focused on limiting its capital exposure while also seeking to capitalise on its significant positions in both countries.
The oil & gas industry is in flux as many companies allocate capital away from the upstream and divest assets. However, as long as global hydrocarbon demand exists, it is imperative that Africa’s oil & gas assets are managed responsibly, efficiently and transparently and that oil & gas production in developing economies creates long-lasting economic and social benefits.
Notwithstanding the focus on reducing the use of fossil fuels by society and through legislation, the oil & gas industry can be an
engine of development in many developing economies, particularly in Africa. Tullow has a long and proud history in Africa and is well positioned to continue as a leader in the continent’s oil & gas industry. With a target to achieve Net Zero by 2030 and an
emphasis on responsible operations, Tullow will ensure that the oil & gas resources of its host countries are developed efficiently and safely while minimising the environmental impact. Through its work, Tullow will deliver Shared Prosperity and create value for our investors, staff, host nations and communities.
Net Zero 2030
Tullow is committed to becoming a Net Zero Company by 2030 on its Scope 1 and 2 emissions. Over the period, this will be achieved through a combination of decarbonizing its operated assets in Ghana and pursuing a nature-based carbon removal programme.
Over the next three years, Tullow has defined plans to reduce its CO2/GHG emissions from its operations through an increase in the gas handling capacity on Jubilee and process modifications on TEN. These investments are included in the Group’s Business Plan and will put the Group on track to eliminate routine flaring in Ghana by 2025.
To offset the residual difficult-to-abate carbon emissions, progress is being made in identifying nature-based carbon removal
projects such as reforestation, afforestation and conservation projects in Ghana. Ongoing work includes project screening, feasibility and investment readiness assessments ahead of selecting projects that deliver carbon offsets and community benefits. Tullow has appointed Terra Global to carry out feasibility studies in Ghana to identify projects for future investment.
Governance – Board changes
In June, Tullow announced that Dorothy Thompson CBE, Non-Executive Chair, had decided to step down from Tullow’s Board. An executive search firm was appointed soon after and the process to find Dorothy’s replacement is progressing well. Tullow expects to announce its new Chair in the autumn.
Tullow has also announced today in a separate press release that Les Wood, Chief Financial Officer, has mutually agreed with the Board that he will step down from Tullow at the end of the first quarter of 2022.