Tullow Oil shifts focus to West African delivery as it invests US$2.7bn

Image: Steel Guru

GHANA – Britain’s Tullow Oil will commit 90% of its investments in coming years on its producing offshore oilfields in West Africa and put exploration on the back burner to reduce debt. The move seeks to boost the firm’s cash generation as well as secure the group’s future.

According to the firm, they will be able to generate US$7 billion of operating cash flow over the next decade, of which US$2.7 billion will go to the oilfields in Ghana, which form the backbone of its business, while US$4 billion will go towards servicing its US$2.4 billion of net debt and shareholder returns.

Tullow, which was set up in the 1980s produce oil and gas in Africa, has historically focused on exploring for new discoveries but the oil price collapse this year has forced the entire oil and gas industry to slash its exploration budget.

Tullow, with a market capitalisation of US$560 million as of recent financials and US$2.4 billion in net debt, said it expected to generate US$7 billion of operating cash flow in the next 10 years.

“The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations.”

Rahul Dhir – CEO, Tullow Oil

“The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations,” Rahul Dhir, the new chief executive, said in a statement on Tullow’s Capital Markets Day.

In a statement before a presentation due at 0900 GMT, Tullow said it had produced only 14% of the 2.9 billion barrels in place in its Ghanaian fields and drilling there would start in the second quarter aiming to expand output in the medium term.

It said It expected to invest around US$2.7 billion over the next 10 years and make US$4 billion in cash flow to pay down debt and distribute shareholder returns at oil prices of US$45 a barrel in 2021 and US$55 from 2022.

In September, Tullow, which pays no dividend, raised the prospect of a potential cash crunch at a debt covenant test in January 2021. It said it was looking at options like refinancing convertible bonds due next year or the senior notes due in 2022, amending its reserve-based lending (RBL) facility or raising cash from banks or other investors by January.

During 2019, Tullow missed a series of production targets, prompting its previous chief executive to quit late last year.

The company, which previously said it aimed to raise US$1 billion from divestments, said it saw less need for more sales after selling its stake in yet-to-be developed Ugandan fields to Total for US$575 million and following cost cuts.

Tullow said it was working on understanding the basin of its offshore field in Guyana which has delivered disappointing results. The field lies next to the Stabroek field where Exxon Mobil has discovered about 8 billion barrels of oil equivalent.

In April this year, Tullow Oil agreed to sell its entire stake (33.3%) in the Lake Albert Development Project in Uganda to Total for US$575 million, including the first oil contingent payments.

According to Tullow’s press release regarding the matter, the sale removed the company from all future capital expenditures associated with the project. Still, it retained potential benefits linked to production and the oil price through the contingent payments.

In June, Tullow divested from Kenya’s oil, selling its rights as oil prices crumbled. This was after the company announced writing off US$800 million of the costs of its exploration in Kenya & Uganda due to a lower oil price forecast and a reduction in reserves. Further, the firm announced plans to dispose of the entire 50% stake in the Turkana oil project.

Tullow’s production in 2020 averages 75,000 barrels per day.

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