The Irish Operator Sells Off A Producing Asset In Congo In Favour Of Development of Spectacular Discoveries In Ghana and Uganda
WHEN TULLOW OIL ANNOUNCED it was selling off its interest in a 46,500BOPD field(2007 average) onshore Congo, some analysts wondered whether that wasn’t a lot to give up for a mid sized independent, especially in an era of high oil prices. The ostensible reason for selling was to raise cash to spend on the promising discoveries in deepwater Ghana and onshore Uganda.
Is that not losing a bird in the hand for two in the bush?
Afterall, deepwater development, at 1,200 metre water depth anywhere, is quite expensive and the Ugandan discoveries, which are over 1,200 km from the nearest seaport, don’t look, on paper at least, like an immediate cash cow.
The questions stopped when it was realized that the Irish operator was getting $435 million from the Korea National Oil Company for giving up about 5,000BOPD of the Mauriel et Prom operated M’boundi field. This is 11% stake. Tullow outrightly sold its subsidiary company – Tullow Congo Limited- to the Koreans. Mboundi is undergoing an injection of 1 0,000Barrels Of Water Per Day (BWPD) which will increase to 40,000BWPD by the end of 2008. Is this the evidence that the reservoirs are difficult to manage? “M’Boundi is now entering a new phase in its development at a time when Tullow is also looking to reallocate capital resources to projects where it has more material participation and influence”, Tullow said in a release.
Tullow’s cash flow comes mainly from Gabon, Equatorial Guinea and Cote Dlvoire, where assets are delivering over 35,000BOPD on a net basis. Tullow is going to be leveraging on the cash generated from fields in these countries as well as money from the Mboundi disposal to advance its appraisal and development programmes in Ghana and Uganda and to continue business development elsewhere.
For some reason, Tullow has been looking to get out of Congo. Two years ago, there was a buzz all over that the Irish owned operator would sell its 4%interests in the Moho-Bilondo, N’Kossa and N’ Soko exploitation permits offshore Congo to TOTAL for $72MM.
Tullow has also divested its 15% in Block 24, located in an unremarkable site off Angola. The acreage is in Benguela sub basin, where oil majors have endured a spate of dry holes. Tullow, however is keen on its 50% participation in Block 1/06, containing three undeveloped oil fields located in the prolific Lower Congo Basin. Tullow is equally bullish on Cote Dlvoire, where it has interest in the 27,000BOPD East and West Espoir fields with 3,000BOEPD of associated gas. Upgrading the processing facilities will increase the liquid handling capacity from 50,000 to 70,000 BFPD by early 2010. This upgrade could also facilitate a further infill drilling programme on East Espoir and the earlier tie-back of potential satellite fields. This is another reason to raise cash.
There are challenges here and there, of course. Tullow is having a hard time convincing the Namibian authorities to move forward on the 1 .3tcfKudu gas project. The latest report is that Namcor, the state power utility, has dropped down Kudu Gas-to-Power project on the list of its priority power projects, describing it as marginal and a non- commercially viable standalone project, “as it is characterized by a high US dollar-denominated gas price, meaning that the foreign exchange and hedging cost will translate into high electricity tariffs.”
Tullow and its partners have commenced field development studies to ensure earliest first production of the deepwater Jubilee field(formerly known as Mahogany and Hyedua) off Ghana. Two rigs have been contracted to drill up to seven exploration and appraisal wells. In Uganda the Ngassa well was progressing as of the time of writing this report and the Butiaba multi-well programme was scheduled to commence in March on the Taitai prospect.
Tullow has been bullish on Uganda, but the uncertainties of the region cannot be dismissed out of hand. Operators here could easily find themselves in the crossfire between troops loyal to President Yoweri Museveni of Uganda and those who back Joseph Kabila of the Democratic Republic of Congo. The low intensity war in the Great lakes region can blow up in anyone’s face.