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Tullow ‘well-placed to deliver growth’ but debt reduction falls short (TLW)

Tullow Oil’s (LSE:TLW) share price remained flat in early trading on Wednesday after it released a trading statement and operational update. The company reported full-year production of 88,200 barrels of oil per day (bopd) in 2018, generating revenue of around $1.8bn.

Tullow’s full-year free cash flow totalled $410m in 2018, significantly below the $700m forecast in its November trading statement. This led to a smaller reduction in net debt at year-end of $3.1bn, compared with the previous estimate of $2.8bn in November.

Looking forward, Tullow forecast’s oil production for 2019 will be in the range of 93,000-101,000 bopd, with an additional 1000 barrels of oil per equivalent per day (boepd) gas production coming from the Tweneboa, Enyenra, Ntomme (TEN) fields offshore Ghana. TEN was Tullow’s second major operated deep-water project in Ghana, and like the Jubilee field – which sits around 20km to the east – the development uses a Floating Production Storage and Offloading unit (FPSO) with a capacity of 80,000 bopd.

In 2019, Tullow expects to drill seven new wells across the TEN and Jubilee fields, allowing gross oil production from Ghana to rise to approximately 180,000 bopd, in line with its production forecasts. This follows a successful drilling programme in 2018 that included two new producer wells at Jubilee and two producer wells and a water injection well at TEN.

Tullow continued to make progress at its non-operated assets throughout the year. In Kenya, Tullow and its partners – which include Africa Oil and Centric Energy – continue to target a final investment decision (FID) by late 2019, with first oil estimated in 2022. The transfer of stored crude oil from Turkana to Mombasa by road continues as part of an early oil pilot scheme and currently moves 600 bopd. This is expected to increase to 2,000 bopd from April 2019.

Farm-out

In Uganda, Tullow, alongside partners Total and CNOOC Ltd, continues to work with the Government of Uganda to finalise the farm-down. The Farm-down, which has an effective date of 1 January 2017 sees the transfer of 21.57% of Tullow’s 33.33% interests in exploration areas 1, 1A, 2 and 3A in Uganda to Total for a total consideration of $900m. Tullow is due to receive $100m on completion of the transaction and $50m at both FID and first oil. The remaining $700m in deferred consideration will be used by Tullow to fund the company’s share of the costs of the upstream development project and the associated export pipeline project.

The farm-out is now expected to complete in the first half of 2019. An FID is also being targeted during this period once agreements with the governments of Uganda and Tanzania have been completed.

Guyana will be the focus for Tullow’s exploration drilling programme in 2019, with the Jethro prospect to be drilled in the second quarter of 2019 as the first of two planned wells on the Orinduik block. The Carapa prospect will be tested on the Kanuku licence in the third quarter of 2019.

Elsewhere, Tullow will undertake geophysical surveys in Côte d’Ivoire, Comoros and around its current assets in West Africa.

Tullow estimates its 2019 capital expenditure will total $570m. Of this $390m will be spent in Ghana, $100m in West Africa, $70m in Kenya. Post-completion costs of around $10m are expected to be associated with Uganda.

As per the announcement on 29th November 2018, Tullow expects to pay an annual dividend of no less than $100 million starting from the 2019 financial year. The dividend will be based on the group’s free cash flow, and will be payable semi-annually; one-third payable as an interim dividend and two thirds in a final dividend.

Paul McDade, CEO of Tullow commented: “Tullow is well-placed to deliver on its growth ambitions. In 2019, we will increase oil production in West Africa, target Final Investment Decisions in East Africa and drill the first wells in an exciting exploration campaign in Guyana. Despite a volatile oil price, Tullow’s improved balance sheet, low cost production and strong cash flow generation, even at lower oil prices, will allow us to both invest for growth and pay a sustainable dividend.”

Author: Stuart Langelaan

Disclosure: The Author does not own shares in the company mentioned above.

 

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