Back to basics for Tullow as 'prolific' West African assets back in focus

London — Cash-strapped Tullow Oil has adopted a new game plan, which involves focusing almost solely on growing its offshore West African assets and scaling down exploration in other frontier basins, the company said Nov. 25.

Tullow has endured a difficult few years, after a series of operational setbacks raised concerns over its survival.

It is hoping to generate $7 billion of operating cash flow in the next 10 years by focusing over 90% of its investment in its West African assets, the bulk of which lie in Ghana. This assumption hinges on an oil price of $45/b in 2021 and $55/b from 2022 onwards.

Ghana reliance

The first phase of this investment program will start in the second quarter of 2021 with the commencement of a multi-well drilling program in Ghana.

The company has only produced 14% or 2.9 billion of oil in place out of the total 400 million barrels of oil that lie in its Ghanaian fields, which is why it is pinning its hopes on its already existing assets.

"We have to get back to basics," said Wissam Al Monthiry, managing director of Tullow's operations in Ghana, which include the Jubilee and TEN fields.

"There is a lot of oil to play for," he said during a call with analysts. "The bench is deep with major infrastructure already in place along with a vast amount of subsea facilities already laid."

Tullow said production will average 73,000-77,000 b/d in 2020, pretty much in line with its previous guidance. Production has averaged 75,000 b/d so far this year, the statement said.

But Tullow CEO Rahul Dhir admitted on the call that production from its oil fields in Ghana will fall next year due to the recent lack of investment.

"You need to invest to drive production," he said. "Simplistically, we just haven't invested in them. This is a consequence of our well stock there. But the decline will be more than offset by the savings [program]."

Dhir said this new strategy is to create a much more focused business to maximize cash saving and prioritize high returns.

"We can do a lot more with the assets we have, and we have no need to buy more," he said.

New way of thinking

Following the closing out of the sale of Tullow's Uganda assets to Total last months, the company said there is less urgency to sell additional assets.

But Tullow Chief Financial Officer Les Woods said the company would reconsider this tactic if the asset sales "are value accretive and strengthen the balance sheet."

Tullow said it still has considerable opportunities to unlock value in its Kenyan and South American projects, but that a new game plan was needed.

"These require an innovative approach and a deep geoscience and engineering expertise, but do not require significant capital investment in the evaluation phase," it said.

The Turkana oil development in Kenya's South Lokichar basin, which has repeatedly been delayed, is currently being reassessed, according to Tullow.

Dhir acknowledged that the Kenyan oil project requires "a different way of thinking" because of the "complexity" involved.

A final investment decision on the project in Kenya's South Loki char basin is now expected by the end of 2022, with the first oil coming on stream two years later, according to new timelines presented to Kenyan authorities.

But Dhir said he is hopeful that FID could be reached by the end of next year.

Located in northwest Kenya, the Turkana project is expected to produce some 80,000 b/d via a planned export pipeline to the port of Lamu on the Indian Ocean when fully developed.

The oil project is estimated to cost $3 billion to finance, with $1.8 billion required for upstream projects and around $1.2 billion for the export pipeline from Lokichar to Lamu.

Dhir also said the explorer is currently trying to better understand the prospectivity in its licenses in South America, which include substantial acreage in Suriname, Guyana and Argentina.

The Goliathberg-Voltzberg North-1 well in Suriname will be drilled in the first quarter of next year, it said.