Tullow Oil plc (Tullow), the independent oil and gas exploration and production group, announces its Full Year Results for the year ended 31 December 2019.

DOROTHY THOMPSON, EXECUTIVE CHAIR, TULLOW OIL PLC, COMMENTED TODAY:
“This has been an intense period for Tullow as we have worked hard on a thorough review of the business which has led to clear conclusions and decisive actions. We are focused on delivering reliable production, lowering our cost base and managing our portfolio to reduce our debt and strengthen our balance sheet. Even with recent events in oil markets, Tullow’s assets remain robust: we are a low-cost African oil producer, with a strong hedging position, substantial reserves that underpin our business and a high potential exploration portfolio.”

2019 FULL YEAR RESULTS SUMMARY

• Group working interest production averaged 86,800 boepd; capital investment of $490 million
• Revenue of $1,683 million; gross profit of $759 million; loss after tax of $1,694 million
• Loss after tax driven by exploration write-offs and impairments totalling c.$2.0 billion including revised Uganda write-off
• Free cash flow of $355 million; year-end net debt of $2.8 billion; gearing of 2.0x net debt/EBITDAX
• Commenced exploration campaign in Guyana; Carapa-1 well confirms extension of Cretaceous play into Tullow’s acreage
• Continued project progress in Kenya towards FID; first ever lifting of Kenyan crude
• Departure of CEO and Exploration Director by mutual agreement following disappointing business performance

BUSINESS REVIEW

• Business Review undertaken covering all aspects of Tullow’s operations and cost base
• Group being restructured to create an effective and efficient organisation; 35% headcount reduction
• Dividend suspended and 2020 capex lowered to c.$350 million; c.$200 million of G&A cash cost savings targeted over 3 years
• Greater Group control of operations and production forecasting through appointment of Mark MacFarlane as COO
• Ghana production and sub-surface management centralised in London; new Asset Director hired
• Areas of potential investment to maintain long-term production and reserve recovery identified at both Jubilee and TEN
• New Head of Exploration hired; c.45% reduction in exploration budget; disciplined exploration strategy
• Portfolio management planned to raise in excess of $1 billion of proceeds, further streamline the business and reduce gearing

2020 OUTLOOK

• Group production year-to-date in line with expectations; full year guidance of 70,000 – 80,000 bopd
• Jubilee performing well after gas processing facility upgraded, increased gas offtake agreed, and sea-water injection capacity optimised; Nt-09 production well at TEN on-stream in Q2; non-operated West African production in line with expectations
• Capex of c.$350 million, down c.30% from 2019; exploring options to reduce further if required
• 2020 free cash flow forecast of $50-$75 million at $50/bbl; free cash flow breakeven of c.$45/bbl
• 60% of 2020 sales revenue hedged with a floor of $57/bbl; 40% of 2021 sales revenue hedged with a floor of $53/bbl
• RBL redetermination ongoing; expected c.$1.9 billion debt capacity at the end of March; liquidity of c.$700 million

Production
Group working interest production averaged 86,800 boepd in 2019. This includes production-equivalent insurance payments of 2,000 bopd from Tullow’s Corporate Business Interruption insurance and 100 boepd of gas sales from TEN. The insured period associated with Tullow’s Corporate Business Interruption insurance claim related to the Jubilee FPSO turret ended in May 2019, three years after cover commenced. Tullow continues to insure against Business Interruption. Guidance for production in 2020 remains unchanged. Working interest oil production is expected to average between 70,000 and 80,000 bopd and year-to-date, Group production is in line with expectations.

Operations review

WEST AFRICA

Ghana
Production from TEN and Jubilee was below expectations in 2019, impacted by a number of factors which were discussed in Tullow’s ‘Board Changes and 2020 Guidance’ announcement on 9 December 2019. Forecasts for 2020 have taken these issues and planned remediations into account and performance in the year to date is encouraging.

A series of actions are being taken to improve overall operating efficiency and reliability at the Jubilee FPSO. Since the start of the year, the planned maintenance work has been successfully carried out to increase gas processing capacity. Repairs have also been carried out to the water injection system which is currently operating at its full design capacity. To sustain full water injection capacity, a taskforce has been formed to implement a series of system reliability improvements that will be carried out throughout the course of the year.

Discussions with Government to increase levels of gas offtake from both Jubilee and TEN have also progressed well and the Ministry of Energy (MoE) is implementing a nominations policy for increased offtake of gas. When followed consistently, this will reduce the amount of gas being reinjected into the field and will help to improve the Gas-to-Oil ratio over time. Tullow has also obtained approval from the MoE to increase flaring from the Jubilee and TEN fields. This permit gives Tullow more scope to effectively manage the amount of gas being injected into the field to help improve the Gas-to-Oil ratio. The increased gas processing capacity delivered in February, flaring, and the renewed focus on well and facility optimisation has delivered improved production levels, with Jubilee currently producing over 90,000 bopd gross.

At TEN, Tullow and its Joint Venture Partners continue to re-evaluate the Enyenra development plan following faster than expected decline at the field and a reduction in reserves. Near-term investment is being concentrated on the Ntomme field, where reserves remain robust with the potential for future growth. Both Enyenra and Ntomme are currently producing in line with expectations, with a combined production of around 50,000 bopd gross.

The Stena Forth and Maersk Venturer drillships worked in tandem on Ghana drilling and completion operations throughout the first half of 2019. The Stena Forth rig was then released for other activities and the Maersk Venturer remains in Ghana. In 2019, five wells were drilled and completed. Tullow expects to continue to use the Maersk Venturer rig across both the TEN and Jubilee fields in 2020. A production well at the Ntomme field is currently being drilled, once completed, the rig will then return to Jubilee to drill and complete a water injector before carrying out workovers on a producer and a water injector.

The final phase of the Turret Remediation Project is the installation of a Catenary Anchor Leg Mooring (CALM) buoy to assist with offloading. The CALM buoy arrived in Ghana in January 2020 and once the installation work is complete and the system is mechanically operational, commissioning is expected to be completed on schedule in the second quarter of 2020.

Non-operated Portfolio
Production from Tullow’s non-operated portfolio was stable in 2019, with strong performance from the Ruche and Simba fields in Gabon, in particular. In December 2019, Tullow’s Joint Venture Partners in the Ruche PSC in Gabon announced that the Group’s back-in arrangements had completed. The deal added c.1,000 bopd in 2019 with further growth forecast in 2020 as additional wells are brought onstream.

Decommissioning
Decommissioning of Tullow-operated licences in the UK North Sea continues to progress as planned. The Group is planning to undertake the final removal and seabed clearance activities during the summer of 2020. In Mauritania, the abandonment programme for the wells in the Chinguetti field commenced at the end of 2019. The abandonment of the wells at the Banda and Tiof fields is due to commence after Chinguetti and continue in 2021. 

EAST AFRICA

Kenya
Good progress on Project Oil Kenya was made in 2019. Front End Engineering Design (FEED) studies for the upstream and midstream parts of the project were finalised, the tendering process for wells is now complete and upstream tendering for Engineering, Procurement and Construction (EPC) has commenced. The midstream Environmental and Social Impact Assessment (ESIA) was submitted to the National Environmental Management Agency (NEMA) in November 2019. The upstream ESIA is now technically complete and publicly available and will be submitted to NEMA in the second quarter of 2020 after final consultation work in Turkana. The land acquisition work led by the Government of Kenya for the upstream development has commenced in the field. Progress has been slower on some workstreams such as access rights to land and water and the long-form commercial agreements to be entered with the Government of Kenya. This slow progress means that the target of reaching FID by year-end 2020 becomes more challenging.

In May 2019, the Early Oil Pilot Scheme (EOPS) production reached 2,000 bopd. Production performance tested during EOPS demonstrates that the reservoir remains consistent with expectations, and no further reservoir data is expected to be required to de-risk the project. The first export of oil from East Africa, a cargo of 240,000 barrels, was flagged off from the port of Mombasa by H.E. Uhuru Kenyatta, the President of Kenya in August 2019. EOPS was suspended in the fourth quarter of 2019 following adverse weather which caused severe damage to the roads used by the trucks transporting the crude. Trucking operations remain suspended until all roads are repaired to a safe standard.

Uganda
In August 2019, Tullow announced that its farm-down to Total and CNOOC lapsed following the expiry of the Sale and Purchase Agreements (SPAs). The expiry of the transaction was a result of being unable to agree all aspects of the tax treatment of the transaction with the Government of Uganda which was a condition precedent to completing the SPAs. Joint Venture conversations with the Government are ongoing. Tullow remains committed to reducing its equity in the project ahead of FID and is working constructively with the Joint Venture Partners and the Government of Uganda to agree a way forward.

The planned development of Uganda’s material oil resources remains at an advanced stage, with the project’s major technical aspects completed. For the upstream components of the project, the ESIA Certificate has been awarded for the Tilenga Project, and the final ESIA report has been submitted for the Kingfisher Project. Good progress has been made on land access secured for both upstream projects and construction costs and schedules have been confirmed from the main EPC bid submissions. For the East Africa Crude Oil Pipeline (EACOP) project, the ESIA certificate has been awarded in Tanzania, and the final ESIA report has been submitted to the Government of Uganda. The key project legal and commercial prerequisites have been outlined to Government by the Joint Venture Partners, with the schedule to FID now dependent on the progress of these negotiations.

EXPLORATION

Africa
2019 exploration activity in Africa was focused on seismic acquisition, access and portfolio management. In Côte d’Ivoire, the farm-in by Cairn Energy to Tullow’s seven onshore licences was completed, and acquisition of a 500 km 2D seismic programme has commenced. In the Comoros, Tullow completed its farm-in to a 35% operated interest and a 3,000 sq km 3D seismic survey of the deepwater play of the Rovuma delta was acquired in the second half of 2019 with the interpretation under way. In Namibia, Tullow acquired a 56% operated interest in PEL-90 offshore Namibia from Calima Energy in June 2019. This was a strategic, lowcost acquisition with no drilling commitments adjacent to the acreage where the Venus-1 wildcat is planned to be drilled by Total in 2020. Licence withdrawals included Blocks C-18 and C-3 in Mauritania and Block 31 in Zambia.

Tullow Oil country profiles:   Ghana   l   Kenya