Tullow Oil to focus on West Africa


Tullow Oil is to focus on its producing assets in West Africa as part of a plan to boost cash generation and secure the troubled energy group’s future.

The oil company — which in September warned that it could default on its debt if it did not address a potential liquidity shortfall — has told shareholders it expects to be able to generate $7bn of operating cash flow over the next decade.

Of this $2.7bn will be invested back into the company, making around $4bn available to service its $2.4bn of net debt and to put towards shareholder returns.

Its cash flow forecasts are based on oil prices of $45 per barrel in 2021 and $55 per barrel from 2022 onwards. Oil prices yesterday reached their highest level since March, at one stage surpassing $48 per barrel, boosted by optimism over coronavirus vaccines.

More than 90 per cent of future capital expenditure will be directed towards Tullow’s assets in West Africa — which form the backbone of its business — to maximise production and cash flow. There will also be a “rigorous” focus on costs, the company said on Wednesday.

Tullow expects to start a multi-well drilling programme in Ghana in the second quarter of next year. It believes it has plenty of scope for further production in the country; it has so far produced 400m barrels of oil from an estimated 2.9bn barrels of oil in place from its assets there.

Tullow had a tough year in 2019, culminating in a dramatic cut to its production forecasts, the departure of its former chief executive Paul McDade and the suspension of its dividend. It recently sold its stake in a project in Uganda for $575m to France’s Total to help ease concerns over its future.

The company is now headed by Rahul Dhir, previously of rival Africa-focused oil and gas group Delonex Energy. It said on Wednesday it would “continue to consider additional asset sales, provided they are value accretive and strengthen the balance sheet” but added: “In light of the material cost savings that the group has realised and the cash flow generation from this new plan, there is now less urgency to sell additional assets.”

While the focus of most of its spending will be on West Africa, the company insisted it still believed it had “opportunities to unlock value” elsewhere, in Kenya and South America, but these would “not require significant capital investment in the evaluation phase”.

Mr Dhir said: “Following hard work by our team, and with input from our partners and external experts, we have a clear strategy and plan for 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 and deliver material value for our host nations and investors.”

Tullow’s production so far this year has averaged 75,000 barrels per day. Full year production guidance remains unchanged at 73,000-77,000 barrels per day.




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