2004 was, by any measure, a remarkable year for Tullow Oil. The Group more than doubled in size, driven largely by the acquisition of Energy Africa in May. Combined with sustained high oil and gas prices and good operational performance throughout the business, the Group delivered a strong set of results in terms of growth, profits and development.
Tullow Oil plc (symbol: TLW) is an independent oil and gas, exploration and production Group, quoted on the London and Irish Stock Exchanges and a member of the FTSE 250. The Group has interests in over 90 production and exploration licenses in 16 countries worldwide focusing on three core areas of NW Europe, Africa and South Asia.
- Turnover up 74% to £225.3 m (2003: £129.6 m)
- Operating profit before exploration activities up 88% to £83.2 m (2003: £44.3 m)
- Basic earning per share up 112% to 6.18p per share (2003: 2.92p per share)
- Dividend per share up 75% to 1.75p per share (2003: 1.0p per share)
- Operating cash flow up 82% to £154.3 m (2003: £85.0 m)
- Working interest reserves amounted to 173 mmboe (2003: 70 mmboe)
- Energy Africa, acquired at a cost of US$570 million (£311 million), has been successfully integrated and consolidated with effect from 28 May 2004. Had these assets been included for the full year, pro-forma turnover for 2004 would have been in the order of £310 million.
- The acquisition of the Schooner and Ketch producing assets and surrounding acreage for £200 million was announced on 20 December 2004. This transaction was completed on 31 March 2005 and the focus is now on integration of these assets and initiation of the redevelopment of the fields.
- Since year end the Group has reached agreements to sell the non core Alba/Caledonia and offshore Congo assets for a combined headline consideration of $184 million (£97 million). This is in line with the Group's strategy of actively managing its portfolio of assets.
Production and Reserves
- Weighted average working interest production for 2004 was 40,600 boepd, 62% ahead of 2003 levels, with a geographic balance between NW Europe (52%), Africa (47%) and Asia (1%) and a product balance between oil (56%) and gas (44%). Group working interest production continues to increase, current production is over 56,000 boepd.
- Energy Resource Consultants Ltd (ERC) performed an independent reserves review on Tullow's entire portfolio of assets as at 31 December 2004. The results of this review attributed commercial proven and probable reserves of 173 mmboe on a working interest basis. In addition, a further 153 mmboe are recognised as contingent reserves resulting in Group total reserves of 326 mmboe.
Production and Development
- The UK Gas market remains a key area of focus for the Group which, in 2004, made a number of notable advances in exploration, development, acquisitions and third party activity. Tullow now has a portfolio of over 50 North Sea Blocks and, post the integration of the Schooner and Ketch fields and the start up of Horne & Wren, will operate over 60% of its forecast 2005 UK gas production.
- The combination of the Energy Africa portfolio with Tullow's existing African interests has created a diversified pan-African business. Tullow now has production of over 30,000 boepd in Africa and holds interests in over 40 blocks across 11 countries, including high impact exploration acreage.
- 2004 was a year of transition for Tullow's South Asian portfolio as this core area was repositioned in line with the enlarged Group. Pakistan in particular has been an area of renewed focus. The aim of the Group is to establish a larger exploration portfolio in South Asia, targeting high impact prospects.
- During 2005 Tullow will actively participate in development activity in the UK, Gabon, Congo, Equatorial Guinea, Côte d'Ivoire, Namibia and Pakistan. Planned expenditure is £100 million, with the primary focus on the UK and West Africa.
Exploration and Appraisal
In 2004 the Group had exploration success in Bangladesh, where the Bangora-1 exploration well tested gas at an aggregate rate of 120 mmscfd gross, and in Equatorial Guinea with the Akom North oil prospect, a satellite to the Okume complex. The Group drilled 16 exploration wells, of which seven were discoveries. The exploration write-off was £18.0 million for the year.
Tullow has approved a total exploration budget of £40 million for 2005 with the objective of participating in up to 15 wells. Of those wells, a number remain subject to further technical review and partner approval.
Corporate Social Responsibility
- Tullow is committed to sustaining environmental and social performance. In 2004, an enhanced Environmental, Health and Safety Policy was implemented across the organization. A CSR Committee with dedicated funding that will report to the Board regularly was established.
Looking forward, 2005 will be a year of consolidation and delivery from Tullow's enlarged portfolio of assets. The Group has an active program of development and exploration that will continue to grow and develop the business. The exploration risk-reward profile will be enhanced by farm-outs of licenses where value has been added through geological and geophysical surveys.
At a global level, the market environment and oil and gas prices are expected to remain strong. In particular, the fine balance between gas supply and demand in the UK underpins the Group's view that the current favorable gas pricing environment in the UK will continue over the coming years.
The $184 million (£97 million) realized from the disposal of non core assets, combined with a planned consolidation of Group banking facilities during 2005, leaves Tullow conservatively funded and well placed to continue to pursue its growth strategy.
Our vision is to be a leading independent oil and gas Group, with a balanced portfolio of exploration and production assets. This vision is underpinned by a consistent growth strategy, the cornerstones of which are a focus on gas in the UK Southern North Sea and oil in West Africa, with an ongoing appraisal and development program in South Asia.
Commenting today, Pat Plunkett, Chairman, Tullow Oil, said:
"In four short years Tullow has increased its production from 2,500 boepd to over 56,000 boepd. The significant achievements of 2004 would not have been possible without the dedication and commitment of our staff, ably led by Aidan Heavey, and the support and confidence of our shareholders and bankers. The challenges and opportunities facing Tullow and our industry in 2005 are exciting ones and I look forward to reporting further progress to shareholders as the year unfolds."
Commenting today, Aidan Heavey, Chief Executive, Tullow Oil plc, said:
"With over $1 billion spent on acquisitions and investments in 2004, the Group has created a strong portfolio of international exploration, production and development assets with opportunities for future growth. Today Tullow has more than 90 exploration and production licenses in 16 countries and the Group's reserves are over 320 mmboe. Quality assets, the current expectation of continued strength in oil and gas pricing and our unique characteristics will, I believe, continue to deliver long term growth and superior performance."