Tullow Oil will now focus on producing all the oil it has discovered, as well as invest spare cash in hub size, near-term crude oil discoveries, rather than foraging for new oil anywhere.
The Irish company no longer wants to be seen as a leading wildcatter in Africa’s frontier, a description that it wore like a badge up until a few years ago.
“We have shifted our focus away from exploration and development and long-cycle capital commitments to a production focused company with a robust, cash generative business plan”, Rahul Dhir, the Chief Executive Officer, says in a pre-Annual General Meeting statement.
The company’s cash cow remains the assets in Ghana. From January 2021, Tullow is implementing a 10-year business plan “which focuses over 90% of our capital investment in our high margin production assets in West Africa”, Dhir says.
For ‘West Africa’, read ‘Ghana’, as Tullow has sold its stakes in Equatorial Guinea and most of Gabon.
The London listed junior started a multi-year drilling campaign in Ghana, planning to drill four wells in total in 2021, consisting of two production and one water injection well on its flagship Jubilee field and one gas injector well on the relatively less prolific TEN field.
“We have successfully drilled the first Jubilee production well and the Jubilee water injector well, and the reservoirs encountered are in line with expectations. The rig will now carry out the completion of these two wells with tie-in and start-up of both wells expected in the third quarter of 2021”.
The business plan, Mr. Dhir says, “will generate material cashflow to self-fund high return, fast payback investment opportunities and reduce debt – even at low oil prices”.
Dhir’s plan proposes:
• Reducing our cost base: we are delivering cost savings across the business including annual G&A cash savings of $125Million. We are becoming a performance focused organisation where every barrel matters and every dollar counts.
• Improving operational performance: our ongoing operational turnaround is delivering more reliable and consistent operating performance with 98% average uptime year-to-date at Jubilee and TEN and better utilisation of our existing infrastructure.
• Rigorous capital allocation: we are focusing on high return and fast payback investments in our production assets and have significantly reduced capital allocation to long-cycle projects.
• Reducing our debt: We have sold our interests in Uganda, Equatorial Guinea and the Dussafu Marin permit in Gabon, raising over $700 million in proceeds. This asset sale programme puts us well on the way to realizing c.$1Billion over two years through assets sales and cost reductions.
• Simplifying our capital structure: we recently completed a comprehensive debt refinancing which gives us the financial stability to deliver our business plan.
• Strong ESG focus: we announced in March that we aim to become Net Zero (Scope 1 & 2) by 2030 as part of our commitment to sustainability. In addition, we maintain our commitment to social investment and developing local content.
Group production to the end of May 2021 averaged c.62,000 Barrels of Oil Per Day(BOPD), which, Dhir says, is in line with expectations.
“This figure reflects the completion of the sale of our Equatorial Guinea interests on March 31, 2021, with no production from these assets recorded past the first quarter. On June 9, 2021, we announced the sale completion of the Dussafu Marin permit in Gabon and we will adjust our full year guidance to reflect both these divestments in our upcoming Trading Statement on 14 July 2021.
“In Ghana, our operational improvement plan is delivering results with 98% average uptime year-to-date across both the Jubilee and TEN FPSOs. As we have previously stated, reliable gas offtake and water injection are an important part of our strategy to optimise reservoir performance and address production decline”.