IHS Global Insight Perspective | |
Significance | In interim reports Tullow has said that its profits are down by 83%, largely due to a fall in oil prices and a reduction in production. |
Implications | Tullow's chief executive Aidan Heavey is focusing the group's attention on key developments in Uganda and Ghana, both of which have multi-billion-barrel reserves of oil. |
Outlook | The company has a number of high-impact wells to drill before the end of the year in both Ghana and Uganda, but could also see its success replicated with wells in Sierra Leone and Côte d'Ivoire. |
Production Down
FTSE100 exploration and production (E&P) firm Tullow Oil has reported an 83% decrease in interim profits for the first half of 2009, based on lower crude prices and production, but the company believes its outlook holds strong potential. Once again Tullow has focused its attention on its operations in sub-Saharan Africa, where it has two major developments with multi-billion-barrel reserves in Uganda and Ghana, but the firm's assets in the United Kingdom and elsewhere have disappointed. The company stated that its overall production has seen a 16% decrease to 59,265 boe/d. With assets in the North Sea, Tullow has seen its U.K. production drop to 15,158 boe/d in the first half of 2009, largely due to underperformance from the Wissey field.
Strong Performance in Uganda and Ghana
Tullow has experienced excellent drilling results over the past few years. Sequential oil discoveries in the Lake Albert Rift Basin in Uganda has seen Tullow and its exploration partner Heritage Oil reach the necessary levels of reserves to sanction commercial development. Uganda is landlocked, so production and export options are still being considered; the government is determined to construct a 150,000-b/d refinery but an export pipeline to the east African coast could also be built. However, it will take several years to build either facility and oil production is likely to increase only slowly as the companies prospecting there learn more about the country's reservoirs. Pumping at full capacity, oil production may not occur until the middle of the next decade. Today Tullow announced that its high-impact well Ngassa-2 drilled on the shore of Lake Albert had encountered oil shows in two reservoir intervals, but that evaluations were still ongoing. Exploration director Angus McCoss said in an interview with Bloomberg that full results from Ngassa-2 would be announced within the next two weeks. A company statement announced that logging was still taking place but that "the pressures in these intervals are higher than normal, which may indicate that they are associated with significant oil columns". The company has for the past six months said it believes it could be looking at a 500-million-barrel oil discovery.
Meanwhile in July the government of Ghana officially approved the Jubilee field Phase 1 Development Plan and Unitisation Agreement. The offshore Jubilee oilfield project remains on course for delivering first oil in the second half of 2010, and the rapid progress means Tullow and its partners will have achieved this target in just over three years since the first discovery well was drilled. The Jubilee field is regarded as a world-class prospect and could hold reserves of up to 2 billion barrels of crude, with a considerable amount of associated gas that will be monetised. Tullow plans to drill several more wells before the end of the year in Ghana's offshore waters.
Outlook and Implications
The drop in oil prices has affected all companies' reporting results and Aidan Heavey, Tullow's chief executive, is bullish in his outlook despite the drop in production. He said in a company-issued statement, "It has been a good first half. Our development projects are on target, our exploration campaigns continue to deliver material discoveries and we have strengthened our balance sheet to maintain financial flexibility. With continued strong progress with our major projects and further expansion of our exploration portfolio, Tullow is well positioned for significant production growth from 2010 and beyond."
IHS Global Insight believes the next few months are particularly exciting for Tullow, with several high-impact wells planned including the Tweneboa-2 well offshore Ghana, which could be spudded in September. The Tweneboa-1 exploration well was drilled in the Deepwater Tano licence at the start of the year, showing oil and gas potential of up to 1.4 billion boe. A multi-well drilling campaign in Uganda's Block 1, which is operated by Heritage, is due to start around the fourth quarter. Several prospects will be targeted near the large discoveries made at the start of the year at the Buffalo-Giraffe field. Tullow has also received confirmation from the Sierra Leone government that it has approval to farm into (at 10%) two blocks, SL-07 and SL-06/07, in the country's offshore waters. An exploration well targeting the Venus-B prospect is currently being drilled by the Belford Dolphin drillship. The rig will then move onto Côte d'Ivoire where it will drill the South Grand Lahou prospect in Block CI-105. These two wells are important to the company, buoying its hopes of continuing the success experienced in Ghana across the West Africa transform margin, which could open up a whole new province for oil exploration. In both cases Tullow has reached agreements with U.S. mid-major Anadarko, indicating that the two companies, which are partners in developing Ghana's Jubilee field, are also working closely together on other projects. Earlier this year Tullow announced it had farmed into three Anadarko blocks in Liberia where seismic data have recently been collected. Tullow has a long list of other wells that it plans to drill and seems to be held up only by the availability of drilling rigs. While crude prices and production may have dropped, the expectations within the company are that next year could be another transformational year.