Tullow shifts exploration focus amid falling oil prices

Falling crude oil spot prices have caused South Africa’s Tullow Oil PLC to cut its 2015 exploration and appraisal budget to about $300 million, placing more emphasis on development and production assets.

The company’s board is in the process of reviewing its 3-year investment plan and past capitalized costs, focusing on French Guiana, where the company has “significant costs” booked for the Zaedyus discovery and subsequent appraisal wells; as well as Mauritania, where a decision will be made on future plans for the Fregate discovery and which licenses to retain.

A third wildcat on the Zaedyus discovery turned up dry in 2013 (OGJ Online, July 23, 2013). Last spring, a second exploration well in Tullow’s Mauritania exploration campaign also turned up dry (OGJ Online, Apr. 25, 2014).

In early 2012, Tullow and Uganda ended months of wrangling over potential tax issues by signing two new production-sharing agreements that enabled the firm to complete a $2.9 billion farmout deal with Total SA and China National Offshore Oil Co. (OGJ Online, Feb. 3, 2012).

Repurposed spending

Tullow now will focus the majority of its exploration and appraisal spending on its operated onshore East Africa portfolio, appraising existing discoveries to advance development in Uganda and Kenya (OGJ Online, Sept. 3, 2014; Oct. 23, 2014). Tullow adds that it will continue to seek low-cost, prospective exploration acreage in its core areas of Africa and the Atlantic margins.

“Tullow remains exploration-led and will continue to add further high-quality frontier acreage so that, as conditions allow, we can return to drilling the types of prospects that have given us the development portfolio we have today,” commented Aidan Heavey, Tullow chief executive officer.

“In 2015, we will be focusing our capital spend on producing and development assets, particularly in West Africa where, by 2017, the group expects to be producing, net to Tullow, over 100,000 b/d of high quality, high margin oil,” Heavey said.

The company’s core oil assets in West Africa include the $4.9-billion Tweneboa-Enyenra-Ntomme (TEN) development project, approval of which was received from Ghana last year. Production launch is expected in 2016, eventually ramping up to 80,000 b/d. At Jubilee, production reached 110,000 b/d last year (OGJ Online, July 3, 2013).

TEN is expected to receive $900 million in spending during 2015, nearly half the anticipated $2 billion in Tullow’s capital expenditure budget for the year.

North Sea trouble

Average working interest production guidance for this full year remains on track for West Africa. However, production in Europe is impacted by underperformance from Schooner, Ketch, and Katy fields.

The company in April agreed to sell 53.1% of its Schooner unit interest along with 60% of its Ketch asset to Faroe Petroleum (OGJ Online, Apr. 30, 2014). Tullow at the time noted that it was continuing to market its remaining southern North Sea gas assets in the UK and the Netherlands.

Full year pretax operating cash flow before working capital is expected to be in the region of $1.7 billion.

Capital expenditure for the full year is in-line with current guidance of $2.1 billion and net debt is expected to be $3.2 billion, with available debt facility headroom and free cash totaling $2.3 billion.

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