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RNS Number : 7455N
Tullow Oil PLC
25 January 2023
TULLOW OIL PLC
JANUARY Trading Statement & Operational Update
25 JANUARY 2023 - Tullow Oil plc (Tullow) issues the following
statement in advance of the Group's 2022 Full Year Results
scheduled for 8 March 2023. The information contained herein has
not been audited and may be subject to further review and
amendment.
Rahul Dhir, Chief Executive Officer, Tullow Oil plc, commented
today:
"Strong operational delivery, rigorous focus on costs and
capital discipline, the increased equity in our key operated fields
in Ghana and higher oil prices drove material, expectation-beating
free cash flow generation in 2022, accelerating the Group's
deleveraging towards a net debt to EBITDAX ratio of 1.3 times by
the year-end. In 2023, we expect Jubilee production to exceed 100
kbopd once the new wells drilled in the southeast of the field are
brought on stream. Our capital investment this year, in particular
in Ghana, is expected to support production growth through to 2025
and material free cash flow generation."
2022 REVIEW
-- Revenue of c.$1.7 billion (including hedge costs of c.$313
million) at an average realised oil price (post hedging) of
$87/bbl.
-- Underlying operating cash flow [1] of c.$1.0 billion and free
cash flow [2] (FCF) of c.$267 million, ahead of guidance; based on
the increased equity interest in Ghana ($126 million) and excluding
the impact of the Norwegian arbitration payment ($76 million), free
cash flow would have been c.$469 million in 2022.
-- Year-end net debt reduced to c.$1.9 billion (2021: $2.1
billion), with expected cash gearing of net debt to EBITDAX of 1.3
times and liquidity headroom of c.$1.1 billion.
-- Capital and decommissioning expenditure were c.$354 million and c.$72 million respectively.
-- Group working interest production averaged 61.1 kboepd, in
line with guidance following pre-emption of the Deep Water Tano
component of the Kosmos Energy/Occidental Petroleum Ghana
transaction.
-- Strong operating, drilling and completion performance in
Ghana, with facilities uptime of c.97% and four Jubilee wells and
two Enyenra wells brought online.
-- An Interim Gas Sales Agreement for 19 bcf of Jubilee gas was
executed in December, representing the first commercialisation of
Jubilee gas.
-- A Letter of Intent was signed with the Ghana Forestry
Commission in December for a nature-based carbon offset project.
Final Investment Decision (FID) is expected in 2023.
2023 OUTLOOK
-- Group working interest oil production guidance of 58 to 64 kbopd.
-- Forecast capital expenditure of c.$400 million, of which
c.$300 million in Ghana, and decommissioning spend of c.$90
million.
-- Underlying operating cash flow(1) expected to be c.$900
million at $100/bbl (c.$800 million at $80/bbl) with free cash flow
of c.$200 million at $100/bbl (c.$100 million at $80/bbl).
-- Capital investment in 2023 in Ghana is expected to support
production growth through to 2025 and free cash flow generation of
$700-800 million [3] for the two years 2024 and 2025 at
$80/bbl.
OPERATIONAL UPDATE
Group average working interest production FY 2022 actuals (kboepd) FY 2023 range (kboepd)
=========================================== ========================= =======================
Ghana 44.4 48
=========================================== ========================= =======================
Jubilee 31.9 37
=========================================== ========================= =======================
TEN 12.5 11
=========================================== ========================= =======================
Non-operated portfolio 16.7 14
=========================================== ========================= =======================
Gabon 14.9 13
=========================================== ========================= =======================
C ô te d'Ivoire 1.8 1
=========================================== ========================= =======================
Total production 61.1 58-64
=========================================== ========================= =======================
NB - Jubilee excludes 19 bcf (gross) of gas sold under the
Interim Gas Sales Agreement.
Jubilee
Production from the Jubilee field averaged 83.6 kbopd (31.9
kbopd net) in 2022. A good operational efficiency of c.97% was
achieved and production was supported by four new wells (one
producer and three water injectors) brought online in early
2022.
Two wells were drilled in the Jubilee South East area in the
second half of 2022 and a third well is currently being drilled.
Primary target reservoir results are in line with expectations with
some deeper reservoirs also penetrated that have encountered
additional resources for future potential development. These wells
will commence production in the second half of the year after the
installation and tie-in to the Jubilee South East Project subsea
infrastructure, scheduled for the middle of the year, in line with
the initial project schedule. The completion of the Jubilee South
East Project will mark the completion of the major infrastructure
spend in the Jubilee area. The majority of future capex is expected
to be focussed on drilling and completing new wells.
First oil from the Jubilee South East project will be a
significant milestone, bringing previously undeveloped reserves to
production. This project is being delivered on budget despite the
inflationary environment and challenges associated with COVID-19
during 2020-22, highlighting Tullow's project management strengths
and ability to integrate deliverables across a global team.
The transition of operatorship to Tullow on the Jubilee FPSO
took place in July 2022 and represented a major step in becoming a
leading low-cost deep-water operator, realising improvements in
safety, reliability and cost. Following the transition, FPSO uptime
averaged c.99% in the second half of 2022, compared to c.95% in the
first half. Operations and maintenance (O&M) costs were c.30%
lower in the second half of the year compared to the first, and
2023 full year O&M costs are expected to be c.23% lower than in
2021, demonstrating the sustainability of the structural changes
delivered through the transformation and helping mitigate the
impact of inflation through the supply chain.
In December, an interim gas sales agreement for 19 bcf gross of
Jubilee gas was executed, valued at $50c/mmbtu, utilising the price
for TEN associated gas referenced in the 2017 TEN Gas Sales
Agreement. The 19 bcf is expected to have been supplied by the
middle of the year at an anticipated export rate in excess of 100
mmscfpd, adding c.7 kboepd net production during the first half of
the year. Further gas export will be contingent on reaching
agreement on acceptable commercial terms for future volumes.
In 2023, Jubilee oil production is expected to average c.95
kbopd (c.37 kbopd net), with a total of up to six new wells
expected to come online, starting in the middle of the year. Gross
oil production from the Jubilee field is expected to exceed 100
kbopd once all these wells have been brought online. The focus on
operational excellence in production, drilling and major project
delivery in recent years has yielded appreciable value and will
continue to be an area of leverage for Tullow.
TEN
Production from the TEN fields averaged 23.6 kbopd (12.5 kbopd
net) in 2022. A good operational efficiency of c.98% was achieved
with overall production at the lower end of guidance.
Enyenra gross production averaged 6.8 kbopd for the full year,
supported by a new production well (En21), which was brought online
in September 2022 and will also contribute to production in 2023.
Ntomme gross production averaged 16.8 kbopd for the full year. No
new wells were brought online during the year but pressure support
from gas and water injection resulted in steady production.
Two wells drilled in the Ntomme riser base area did not
encounter economically developable resources and will not be
completed in 2023 as originally intended, removing c.2.5 kbopd net
from previously expected 2023 production.
The near-term focus on TEN is to sustain the strong operational
uptime and improve gas handling on the FPSO this year. This will be
implemented during a planned maintenance shutdown, scheduled for
the third quarter of the year. Increased gas handling capacity will
also facilitate a significant reduction in flaring and increased
gas injection to support oil production.
The longer term plan is to monetise the significant remaining
TEN resources through infill drilling particularly on Ntomme,
phased development of new areas near existing infrastructure,
development of the significant gas resources and drilling of
prospective resources. Tullow expects to submit a plan of
development to the Government of Ghana later this year.
In 2023, TEN production is expected to average c.20 kbopd (c.11
kbopd net), including the planned two week maintenance shutdown. A
water injection well (En16) which was brought online in December
2022 is expected to provide pressure support for production from
Enyenra in 2023. No new wells are planned to be added in TEN in
2023.
Non-operated
Production from Tullow's non-operated portfolio was 16.7 kboepd
net in 2022, supported by new wells brought online in Tchatamba,
Ezanga and Etame.
2022 capital expenditure across the non-operated portfolio was
c.$43 million, with approximately 60% on infrastructure projects,
including the tie-back of the Wamba discovery for a long-term
production test, which started in October and is expected to
continue throughout 2023.
Production in 2023 is expected to average c.14 kboepd. Total
capital expenditure is expected to be c.$40 million of which c.75%
will be allocated to infrastructure projects to support future
development and production. The remaining investment will be in new
wells and workovers across the portfolio to sustain production
levels.
Kenya
Tullow continues to focus on the process to secure a strategic
partner for the development project in Kenya.
In parallel, Tullow and its JV Partners are working with the
Energy and Petroleum Regulatory Commission Authority (EPRA) and the
Ministry of Energy and Petroleum to finalise the FDP.
Exploration
In Côte d'Ivoire, Tullow has leveraged its differentiated
understanding of the Tano Basin to secure a 90% interest in a new
offshore exploration licence (CI-803) which, along with the Tullow
operated CI-524 licence, provides Tullow with a strategic position
in an area adjacent to the Group's producing fields in Ghana.
In Gabon, Tullow continues to focus on selective
infrastructure-led exploration (ILX) activities to underpin
production. In the Perenco-operated Simba licence, Tullow and its
JV Partners have matured several low-risk and compelling ILX
options for drill readiness in 2023-25.
In the emerging basins of Guyana and Argentina, Tullow continues
to seek opportunities to unlock value from the significant
prospective resource base.
In 2022, capital expenditure on exploration activities was c.$45
million. In 2023, this is expected to be c.$30 million, which
includes drilling costs for one non-operated well on Simba in
Gabon.
ESG
In December 2022, Tullow signed a Letter of Intent (LoI) with
the Ghana Forestry Commission (FC). The LoI is a key milestone for
Tullow in developing a long-term supply of carbon offsets as part
of its progress to reach Net Zero by 2030 and to support Ghana in
meeting its Nationally Determined Contributions under the Paris
Agreement. A Final Investment Decision (FID) is expected in
2023.
During 2022, Tullow supported STEM education through a range of
programmes from primary to tertiary education across its countries
of operation and created new entrepreneurship opportunities in
Ghana and Kenya. Thousands of beneficiaries of these programmes are
now leveraging new knowledge and skills as productive members of
their communities.
Tullow's multi-year flagship senior high school programme has
provided accommodation for 2,850 pupils, more than 90% girls, and
classroom facilities for 600 pupils, increasing general school
enrolment. There has also been increased focus on local content in
2022 with several new initiatives with the supplier base in our
host countries to raise awareness of business opportunities,
provide practical assistance for businesses and enhance supply
chain transparency. Tullow received the 2022 Ghana Oil and Gas
Local Content award in recognition of these efforts.
FINANCIAL UPDATE
The Group generated total revenue, including the cost of
hedging, of c.$1.7 billion, at a realised average oil price of
c.$102/bbl before hedging and c.$87/bbl after hedging.
The additional equity in the Jubilee and TEN fields acquired
through the pre-emption transaction in Ghana for $126 million has
already paid back by 31 December 2022.
Full year capital expenditure was c.$354 million, c.$270 million
in Ghana (of which $107 million in infrastructure), c.$31 million
in Gabon, c.$12 million in Côte d'Ivoire and c.$45 million on
exploration and appraisal activities. In Kenya, proceeds from Early
Oil Pilot Scheme (EOPS) cargo sales have been recorded as a credit
against capex, resulting in a net inflow of c.$4m. Decommissioning
expenditure was c.$72 million.
Free cash flow for the full year 2022 is expected to be c.$267
million, ahead of guidance, with lower oil prices towards the end
of the year offset by continued focus on cost control and deferrals
of decommissioning costs and capital expenditure.
Net debt at the end of the year was c.$1.9 billion. Cash gearing
of net debt to EBITDAX is expected to be 1.3 times at year-end
2022, ahead of guidance at the start of the year which was to reach
less than 1.5 times by year-end 2023. Liquidity at year-end 2022
was c.$1.1 billion, consisting of c.$0.6 billion free cash and $0.5
billion available under the revolving credit facility. Tullow
regularly reviews options for optimising its capital structure and
may seek to retire or purchase outstanding debt from time to time
through cash purchases or exchanges in the open market or
otherwise.
In 2023, Tullow plans to invest c.$400million, of which c.$300
million in Ghana (primarily in Jubilee, including over $100 million
in infrastructure), c.$40 million in Gabon, c.$20 million in Côte
d'Ivoire, c.$10 million in Kenya and c.$30 million on exploration
and appraisal activities. This is an increase of c.$50 million
compared to 2022 as a consequence of deferrals from 2022, increased
equity in Ghana for the full year, and ongoing infrastructure
investment in Jubilee South East, which will account for c.40% of
Ghana capital spend in 2023.
Decommissioning expenditure is expected to be c.$90 million in
the UK and Mauritania, including deferrals from 2022, with less
than $30 million of decommissioning liabilities in the UK and
Mauritania remaining at the end of 2023. Additionally, starting in
2023, c.$30 million is expected to be paid annually into escrow for
future decommissioning of currently producing assets in Ghana and
parts of the non-operated portfolio.
Cash taxes are expected to be in excess of $300 million in 2023
(at $80/bbl) as historical capital allowances in Ghana will have
been fully utilised in the first quarter of 2023. Tullow has
received both revised and new tax assessments from the Ghana
Revenue Authority throughout 2022, with these assessments not
resulting in an increase to the overall exposure previously
disclosed. Tullow believes these assessments are without merit and
continues its active engagement with the Government of Ghana with
the aim to resolve these disputes on a mutually acceptable
basis.
Free cash flow for the full year 2023, post hedging, is expected
to be c.$200 million at an average oil price of $100/bbl (c.$100
million at $80/bbl); this assumes revenue receipts for 15 cargos
lifted from the Jubilee field and four cargos lifted from the TEN
fields in Ghana during the year.
Capital investment in 2023, in particular in Ghana, is expected
to support production growth through to 2025 and free cash flow
generation of $700-800 million at 80/bbl for the two years 2024 and
2025 based on 2P reserves only, which will further reduce net debt
and strengthen Tullow's balance sheet.
Tullow's commodity hedge portfolio provides oil price downside
protection at $55/bbl for c.64% of forecast sales volumes to May
2023 and c.40% of forecast sales volumes from June 2023 through to
May 2024. With the majority of hedges executed as part of the 2021
debt refinancing rolling off, Tullow will have increased exposure
to higher oil prices from May 2023 onwards. Tullow plans to build
out its commodity hedge portfolio for the second half of 2023 and
into 2024, looking to maintain material upside exposure whilst
securing protection against a severe oil price downturn.
Oil hedge portfolio as of 31 December 2022 2023 2024
============================================ ========= =========
Hedged volume (kbopd) 33.1 11.3
============================================ ========= =========
Weighted average floor protected $55/bbl $55/bbl
============================================ ========= =========
Weighted average sold call $75/bbl $75/bbl
============================================ ========= =========
Premium spend $2.0/bbl $2.0/bbl
============================================ ========= =========
CONTACTS
Tullow Oil plc Camarco
(London) (London)
(+44 20 3249 9000) (+44 20 3781 9244)
Robert Hellwig Billy Clegg
Matthew Evans Georgia Edmonds
Rebecca Waterworth
==================== ====================
Notes to editors
Tullow is an independent oil & gas, exploration and
production group which is quoted on the London and Ghanaian stock
exchanges (symbol: TLW) and is a constituent of the FTSE250 index.
The Group has interests in over 30 licences across eight countries.
In March 2021, Tullow committed to becoming Net Zero on its Scope 1
and 2 emissions by 2030. For further information, please refer to
our website at www.tullowoil.com .
Follow Tullow on:
Twitter: www.twitter.com/TullowOilplc
YouTube: www.youtube.com/TullowOilplc
Facebook: www.facebook.com/TullowOilplc
LinkedIn: www.linkedin.com/company/Tullow-Oil
[1] Cash flow from operating activities including lease
payments, before capital investment, decommissioning expenditure
and debt service.
[2] Free cash flow before debt amortisation and including a $75
million payment from TotalEnergies following Ugandan parliamentary
approval of the Uganda Final Investment Decision (FID), a payment
of $76 million to HiTec Vision in relation to the purchase of
Spring Energy in 2013 and total consideration of $126 million for
the pre-emption related to the sale of Occidental Petroleum's
interest in the Jubilee and TEN fields in Ghana to Kosmos
Energy.
[3] Based on 2P reserves only.
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END
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