Tullow Loses $597m, Ghana Work is Delayed

UK independent Tullow Oil reported a net 2016 loss after tax of $597mn, 42% down from its $1.04bn loss in the previous year, as it reported further delays to repairs at its Jubilee field offshore Ghana on February 8.

The loss reflected $723mn of exploration wells written off (little changed year on year), an impairment of its Norway assets that were mostly sold last year, and smaller non-cash charges on its Norway divestments and also its Uganda farm-down to Total. The latter is paying $900mn to Tullow.

Tullow enjoys "a very solid footing between Ghana [production] and Uganda/Kenya [exploration]" adding "we want to get back into exploration," said Paul McDade, chief operating officer who takes over as CEO in April. 

Paul McDade takes over from Aidan Heavey as Tullow CEO in April (Photo credit: Tullow Oil)

Tullow expects its net 2017 production in West Africa to average between 78,000 and 85,000 b/d, with gas of 6,000-7,000 boe/d; this follows net oil production there averaging 65,500 b/d in 2016.

Detailed planning of works on the Ghana Jubilee floating production ship (FPSO), specifically to its turret loading system, continues with joint venture partners and the Ghanaian government, said McDade. This work-plan is expected to be approved mid-2017 by the government, with work then carried out in the second half of this year, he said.

Tullow had originally planned to do the work late 2016 / early 2017. It gave no reasons for the delay to approvals, but elections in Ghana led to a change of government. The firm still expects a shutdown of Jubilee for up to 12 weeks. A shutdown will curtail Jubilee associated gas supplies to Ghana.

TEN gas export pipe being tied in

McDade however told analysts February 8 that a gas export pipeline from TEN fields is now being tied into the manifold on the [Jubilee/TEN gas] offshore pipeline to shore, and some associated gas from TEN may be available to the Ghanaian market during any shutdown.

He added that the longer-term opportunity in west Africa is to produce and market non-associated gas, citing how Sankofa (or OCTP) gas will be produced and marketed by Eni and Vitol at "prices of $6 to $9/mn Btu". Some TEN fields contain non-associated but are yet to be started up, he said. Current Jubilee gas revenues represent only 1% of Ghana revenues, as the non-associated gas is so cheap, he noted.

Overall, the TEN oil and gas development started on time and on budget in August 2016, said McDade. Gross oil production from TEN is forecast at 50,000 b/d in 2017. More production drilling at TEN is expected to resume there in 2018, after an international arbitration ruling expected late 2017 between Ghana and Cote d’Ivoire. Oral hearings are scheduled for this month. Tullow admits it cannot predict the arbitration outcome.

Tullow said on February 7 that its corporate facility was extended by a further year to April 2019, after being oversubscribed by major bank lenders.

It also outlined its planned 2017 frontier exploration programme in Kenya, Namibia and Suriname. Exploration director Angus McCoss noted that Tullow will be “purposefully drilling for oil”, rather than gas, offshore Mauritania. 

Divestment in Norway is “progressing well” with two deals last year and one in January 2017. 

Working interest production was 9% lower in 2016 at 67,100 boe/d, with average oil price realised down 8% to $61.40/b and average gas down 19% to 33.9p/therm.

Mark Smedley