Tullow Issues Trading Statement, Operational Update

Tullow Oil plc issues this trading statement in respect of the first half of the 2006 financial year to June 30, 2006, and this operational update in respect to production, development, and exploration activities during the period April to July 2006.

The trading statement is in advance of the group's interim results, which are scheduled for release on Sept. 6, 2006. The information contained herein has not been audited and is subject to further review.

Trading for the first half of 2006 was at record levels, with a strong production performance combining with a reduced oil price discount and continuing favorable oil and gas pricing.

    Production and Development

    * In the first half of 2006 the Group drilled 18 development wells
      increasing average Group working interest production to 63,200 boepd, 8%
      higher than 2005 levels;
    * Current working interest production potential is approximately 72,000
      boepd. This includes 9,000 boepd from Horne & Wren, which is shut in for
      the summer months to take advantage of the seasonal price differential;
    * Further strong growth in production is expected in the second half of
      the year through the ongoing development programs on the Schooner and
      Ketch fields (U.K.), the Okume Complex (Equatorial Guinea), West Espoir
      (Cote d'Ivoire), Bangora (Bangladesh) and Chachar (Pakistan);
    * Working interest production in 2006 is expected to average approximately
      66,000 boepd and exceed 75,000 boepd by year-end.

Exploration and New Ventures

    * In the first half of 2006 the Group drilled 11 exploration wells of
      which six discovered hydrocarbons;
    * The prospectivity of the Albertine Basin in Uganda has been
      significantly enhanced by the Mputa and Waraga discoveries and excellent
      results to date from the Waraga well test. Further exploration and
      appraisal work, including the Kingfisher well, is planned for the next
      12 months;
    * Three successful exploration wells in the U.K. Southern North Sea
      including the potentially significant K4 discovery in the CMS Area;
    * An active new ventures program with further near-term West African
      additions anticipated.

"Tullow's business is performing strongly and our major appraisal and development programs, in each core area, are progressing to plan,” said Aidan Heavey, Tullow’s chief executive. “The recent exploration and well testing results in Uganda indicate significant potential in this virtually unexplored basin and provide a lot of encouragement for the forward program in the region. Overall, the outlook for the remainder of 2006 is very promising."

Trading statement
This trading statement is provided for the 6 months ended June 30, 2006, in advance of the group's 2006 interim results, which are scheduled for release on Sept. 6, 2006. The information contained herein has not been audited and is subject to further review.

Tullow had a strong first half of 2006. Trading and production were at record levels, combined with a reduced oil price discount and continuing favorable oil and gas pricing.

Group working interest production for the first half of 2006 averaged 63,200 boepd, which is 8% greater than the 2005 average production level.

A further breakdown of these figures is provided in the operational update for each core area. Production figures remain subject to final reconciliation and do not equate to sales volumes. This is due to variations in lifting schedules and because a portion of the production is delivered to host governments under the terms of production sharing contracts.

Working interest production for 2006 is expected to average approximately 66,000 boepd, with year-end production expected to exceed 75,000 boepd.

Realized prices and oil discount
Average prices realized during the first half of 2006 were significantly higher than those for 2005. Realized oil price was approximately US$63/bbl (pre-hedges) and US$55/bbl (post-hedges) and realized U.K. gas price was approximately 52-53p/therm.

During the first half of 2006 the group's oil production sold at an average discount of 4 to 5% in relation to dated Brent. This level of discount is expected to continue for the remainder of the year. The discount has narrowed from a 2005 average of 13% due to improved market conditions and better marketing arrangements, combined with the sale of the Alba field in 2005. Alba crude traded at a significant discount to Brent.

Overlift position
At June 30, 2006, Tullow was in a net overlift position amounting to an estimated 360,000 barrels. Such overlift positions are valued at market value and accordingly a charge of approximately GBP10.1 million will be made to cost of sales.

Exploration write-off
Tullow's accounting policy is to write-off in full, to the income statement, all costs relating to pre-license costs and unsuccessful exploration activities during the period. Based on current estimates, Tullow's exploration write-off for the first half of 2006 is expected to be of the order of GBP18 million subject to any further technical work. This write- off is principally associated with unsuccessful exploration activities in Gabon, Pakistan, and Angola and new ventures activity during the period.

Capital expenditure
During the first half of 2006, Tullow invested a total of GBP151 million in development and exploration activities.

Planned capital investment during 2006 is of the order of GBP310 to GBP320 million, of which approximately 75% will be spent on ongoing development and production enhancement activities in the U.K., Gabon, Congo (Brazzaville), Cote d'Ivoire, Equatorial Guinea, Pakistan. and Bangladesh, with the balance focused on exploration activities.

Net debt
Net debt at June 30, 2006, was GBP78.8 million, inclusive of all cash balances.

Hedging reflected in Income Statement (IAS 39)
At June 30, 2006, the group's derivative instruments had a negative mark to market of approximately GBP144.0 million, of which a large portion relates to contracts acquired as part of the acquisition of Energy Africa in May 2004. While all of the group's derivative instruments currently qualify for hedge accounting, a charge of approximately GBP11 million (GBP8 million after taxation) will be recognized in the income statement for the first half of 2006. A substantial portion of this charge relates to unrealized changes in the time value of the hedges due to the impact of rising oil prices on the fair value of the hedge instruments, most notably collars. The ineffectiveness portion of the charge arises from factors inherent in the hedges, including crude oil discounts relative to Brent, timing of oil liftings, and field performance.

Hedging summary

At June 23, 2006, the group's hedge position to the end of 2007 is as

    Oil Hedges**                      H2 2006      H1 2007      H2 2007

           Volume - bopd               11,717        9,000        9,000
           Average Price* - $/bbl        45.2         52.4         52.2

    Gas Hedges                        H2 2006      H1 2007      H2 2007

           Volume - mmscfd               60.0         28.8         13.8
           Average Price* - p/therm      45.4         66.7         50.6

    *  Average hedge prices are based on market prices as at June 23, 2006 and
       represent the current value of hedged volumes
    ** The oil hedges include 4,000 bopd at an average price of $29.2/bbl
       acquired as part of the Energy Africa transaction.

Operational update
This operational update summarizes recent key activities in the Exploration (E), Appraisal (A), Development (D), and Production (P) assets of Tullow Oil plc.


In the U.K. North Sea, Tullow's principal interests are in the Southern Gas Basin. During the first half of 2006, Tullow continued its high level of activity in the region, participating in three new exploration discoveries and drilling two successful development wells.

The commercial environment for producers within the U.K. gas market remains extremely positive with very attractive winter gas pricing and seasonal price differentials at record levels. Tullow seeks to manage its production and commercial activities to facilitate delivery of gas into the U.K. market during periods of maximum winter demand.


    Working interest                H1 2006 Average      Current Production
    production(1)                   (boepd)              (boepd)

    Thames-Hewett Area               12,400                7,000(2)
    CMS Area                         16,000               19,000
    UK Total                         28,400               26,000

    (1) Includes condensate
    (2) Note that 9,000 boepd of production from Horne & Wren is shut in for
        the summer months

    Schooner (P/D) (Tullow 90.35%) and Ketch (P/D) (Tullow 100%)

Production from the first well of the redevelopment program, Schooner-10, commenced on May 16 at a rate of 22 mmscfd. As part of the production optimization program, Schooner-8 was also returned to production and is currently producing approximately 6 mmscfd. Field uptime has been maintained at over 98% and the production capability of the fields is now approximately 65 mmscfd.

The Ensco-101 rig has now moved to the Ketch field to drill three development wells and to carry out a concurrent campaign of stimulation and remedial work on the existing production wells. The first well, Ketch-7, is currently drilling and is expected to be completed in September.

A second rig, the Borgsten Dolphin, is currently drilling the NW Schooner Extension appraisal well which is expected to complete in September. This 100bcf opportunity has been brought forward to minimize weather downtime by drilling during the summer months and, if successful, will be brought on production prior to the winter 2007/08 period.

Horne & Wren (P) (Tullow 50%)
In May, with winter/summer gas price differentials reaching unprecedented levels, the decision was taken to shut in the Horne & Wren fields during the summer months of 2006 and 2007 to maximize production over the next two winter periods. While having the overall effect of reducing Tullow's annualized U.K. gas production by approximately 3,000 boepd, this strategy adds significant value and contributes additional gas to the U.K. market during periods of peak winter demand.

Delilah (P/D) (Tullow 51.68%*)
The Delilah 48/30-16 subsea well, which failed in mid-2003, was horizontally sidetracked and put onstream in March 2006. The well is currently producing at 25 mmscfd and is expected to add more than 10 bscf of incremental reserves to the field.

    * This includes a 12.87% equity interest which Tullow has contracted to
      purchase from Centrica.  This transaction is expected to complete in

Kelvin (D) (Tullow 25%)
The Kelvin field, discovered in 2005 with the K3 well, is expected to be developed using a minimum-facilities platform with a pipeline to the central CMS hub at Murdoch. The target for first gas is December 2007. It is anticipated that the Kelvin facilities will also act as a hub for the development of any future discoveries in the region, including the recent K4 discovery.

U.K. exploration
Over the last 5 years, Tullow has drilled seven consecutive successful exploration wells in the CMS area including three in 2006.

Humphrey (E) (Tullow 35%)
The Humphrey exploration well discovered gas in early 2006. A decision on commerciality is planned for the third quarter of this year following technical and economic evaluations.

Cygnus (E) (Tullow 35%)
The Cygnus exploration well in block 44/12-2 discovered gas in several reservoir zones and was suspended in May following a successful well test of the principal target. The results are currently being evaluated to determine the commerciality of the discovery.

K4 (E) (Tullow 22.5%)
The K4 exploration well, 44/23b-13, discovered gas bearing reservoir sands in the targeted Lower Ketch carboniferous interval and significant upside potential has been identified. Information from the well will now be integrated with existing data to determine the full extent of the accumulation and future development is likely via the planned Kelvin facilities, which are only five kilometers away. Any development is expected to include a further appraisal well to fully assess the ultimate reserve potential of the discovery.

The K4 and Kelvin discoveries provide significant encouragement for further exploration on adjacent prospects, with both the Cameron and Harrison prospects identified for drilling over the next 12 months.


In Africa, Tullow has production and development interests in Gabon, Cote d'Ivoire, Congo (Brazzaville), Equatorial Guinea, and Namibia. Tullow also has exploration interests in Morocco, Mauritania, Senegal, Cameroon, Uganda, Equatorial Guinea, Angola, and Cote d'Ivoire. In the first half of 2006 Tullow continued its development and drilling activities on its producing assets while maintaining an active exploration and new ventures program throughout the region with a number of West African opportunities identified. The successful production and development operations in the group's African assets continue to contribute to strong production growth. Tullow's production in Africa is expected to exceed 40,000 boepd in 2007.

    Working interest                H1 2006 Average      Current Production
    production                      (boepd)              (boepd)

    Congo (Brazzaville)               6,200                5,700
    Cote d'Ivoire                     6,200                6,700
    Equatorial Guinea                 5,200                5,900
        Tchatamba                     7,000                7,000
        Niungo                        5,400                5,400
        Other Gabon                   3,800                3,800
    Africa Total                     33,800               34,500

Republic of Congo (Brazzaville)

M'Boundi Field (P/D) (Tullow 11%)
The development and infill drilling program on the M'Boundi Field is ongoing with 11 wells drilled so far this year. These wells included a number of important delineation wells, which have defined the northern and southern limits of the field, thereby better defining the oil initially in place range for the field. Seven of the wells drilled have been completed and are now contributing to the field production, which exceeded 60,000 bopd during the first quarter of 2006. The average gross field production is now 52,000 bopd, with 45 wells currently onstream. Four rigs and a workover rig are currently in operation within the field. The drilling of water injection wells is now under way and the workover rig is preparing to commence the drilling of the water-producing and salt-leaching wells. It is anticipated that after the initial results of the water injection project are assessed, the decision will be made to expand water injection to the full field, thereby optimizing the field recovery factor. The blending and export of M'Boundi crude with the higher-quality N'Kossa blend commenced in January, thus significantly improving per barrel realizations.

Equatorial Guinea

Ceiba Field (P/D) (Tullow 14.25%)
The infill drilling program that commenced in 2005 has continued. So far this year one production well and one water injector have been drilled and four top hole sections have been batch drilled--three producers and one injector. The program is expected to result in a gross average field production of around 40,000 bopd for 2006.

Okume Complex Development (D) (Tullow 14.25%)
The Okume Complex comprises the Okume, Oveng, Ebano, and Elon fields. Two Tension Leg Platforms (TLPs), constructed in Korea, were installed on the deepwater fields Okume, Ebano, and Oveng in April and four jackets and two topsides were installed on the Elon field. All of the Phase I work was completed during April, ahead of schedule. The next installation phase comprising pipelines, tie backs, and central processing facilities will occur in September. The development remains on-budget and on-schedule for first oil by the end of 2006. Initial production is expected to reach 30,000 boepd in early 2007, building to a plateau of 60,000 boepd by the end of 2007. Oil will be blended with Ceiba production and exported via the Ceiba FPSO, leading to greater operating and production efficiency.

Cote d'Ivoire

East Espoir Field (P/D) (Tullow 21.3%)
Following the EP-7 and EP-8 infill production wells, which were put on production in late-2005, the final two wells in the East Espoir infill program, EP-9 and EP-10, were completed in early 2006. These wells have produced above expectations, increasing the average field production to in excess of 32,000 boepd, the highest level recorded since production commenced in 2002.

West Espoir Development (D) (Tullow 21.3%)
Progress on the West Espoir development project is well advanced and the first of three production wells was spudded in late May. The well has intersected the reservoir sands including an additional upper reservoir sand that will also be completed for production. First oil is scheduled for August 2006 with further drilling enabling production to build to 10,000 boepd during 2007.


Avouma (D) (Tullow 7.5%)
The Avouma development in the Etame block, adjacent to the producing Etame field, is progressing well. Development drilling is expected to commence in the third quarter of 2006, with first oil production scheduled for the end of the year. In addition, an application for a development license for the Ebouri discovery in the same block was lodged in June. Tullow has a 7.5% back-in option on both of these fields.

Niungo (P/D) (Tullow 40%)
Following the evaluation of the exploration, appraisal, and development wells drilled in 2005, a new program of eight wells is scheduled to commence in September. The initial aim is to drill several development wells to increase production to the facilities limit (circa 15,000 bopd), followed by a number of appraisal wells to assess possible northern and southern extensions of the field. As in 2005, further wells may be added in the event of positive results. As part of this program up to two exploration wells are also planned for early 2007 on the adjacent Nziembou license. The prospects in this block lie on-trend with the Niungo field.

Tchatamba (P/D) (Tullow 25%)
Tchatamba production has been maintained at a gross rate of 28,000 boepd with very low down time since the beginning of the year. Plans are in place for a workover program in the third quarter to maintain production at these levels.

Gabon Exploration (E)
During the first half of 2006, Tullow participated in three offshore exploration wells, none of which discovered commercial quantities of hydrocarbon. A further two Tullow-operated offshore wells are planned for 2007, most likely in the Kiarsseny and Azobe licenses and a jack-up rig has been contracted for this program.

The Azobe license, in which Tullow previously held a 35% non-operated interest, has been renewed for up to six years, with Tullow as operator and holding a 60% interest. The block is situated close to the Cap Lopez export terminal, which may facilitate a fast-track development of an undeveloped oil discovery.


Kudu (D/A) (Tullow 90%)
Good progress has been made in relation to both the first phase of commercialization of the Kudu gas field via a gas-to-power generation project and the appraisal of the significant upside potential of this project in offshore Namibia.

The gas sales agreement negotiations have continued in parallel with the power purchase agreement negotiations between Nampower and Eskom. Invitations to bid for the various construction activities are expected to be issued during 2006.

Plans for the two well appraisal programs are progressing well and drilling is scheduled to commence in early 2007.

In parallel with the ongoing planning for the development of Kudu, the regional energy market in southern Africa continues to exhibit strong growth. In Namibia, this has required the development of a range of contingency measures to ensure ongoing adequacy and security of power supplies. Successful development of Phase I of Kudu has the potential to make a very important contribution to Namibia's power needs and Tullow places a high priority on achieving project sanction at the earliest opportunity.


Basin-wide exploration campaign (Tullow 50%)
Tullow has the leading acreage position throughout the Albertine Basin, comprising over 12,000 square kilometers across three licenses.

With this strong position, Tullow is able to gain a considerable overview of the region. The group works closely with the operators to optimize the basin-wide exploration campaign, ensuring that a systematic program addresses the extensive portfolio of plays, leads and prospects already identified. Although basic commerciality of the Waraga discovery has been demonstrated by the ongoing well test, Tullow's principal objective remains to determine and understand the potential for material commerciality basin-wide.

Block 2 - Exploration wells and production testing (E) (Tullow 50%)
Since January 2006, Tullow has made significant progress in proving up a substantial new hydrocarbon province in the Albertine Basin in Uganda with three oil discoveries and a very encouraging well test completed to date.

Following the Mputa-1 discovery in January and the Waraga-1 discovery in March, the Mputa-2 well, a 3km step-out, was drilled in May. Data acquired from the well indicate that the Mputa-1 reservoir sands may be laterally continuous and that in addition to the structural traps encountered in the previous wells, there is also a working stratigraphic play in the area. The Mputa-2 well was cased and suspended on May 31, 2006.

Production testing from the first of three separate reservoir zones of the Waraga-1 discovery well commenced on June 22, 2006. All three zones have now been tested. The aim of the tests was to assess the formation productivity and to acquire good quality fluid samples. The key results from the ongoing tests were as follows:

    Well    Perforation    Main flow         Max flow rate     Oil
    Test    Interval       rate and          and choke         Quality
            (m)            choke size        size              (degrees API)

    #1      1,888 - 1,894   1,500 stb/d       4,200 stb/d        33.8
                            (36/64")          (1")
    #2      1,782 - 1,794   2,400 stb/d       4,200 stb/d        33.8
                            (36/64")          (1")
    #3      1,680 - 1,710   2,115 stb/d       Not Complete       18.5

The results show that all three reservoirs penetrated by the Waraga-1 well are of excellent quality with multi-Darcy permeability. The crude from the upper zone (#3) was approximately 19 degrees API, likely indicative of limited bio-degradation expected at these shallower depths. Significantly, the crude quality from the two lower zones (#2 and #1) is good-quality light but waxy oil (33-34 degree API) with a low gas-to-oil ratio. This is very encouraging from a commerciality perspective.

Block 2 - Gravity and Seismic Survey (E) (Tullow 50%)
An onshore gravity survey to the north of Block 2 was completed in June 2006. The survey indicates several gravity highs of exploration potential similar to Mputa and Waraga. The results are being used to define the 2D seismic survey planned for later in the year. The option of acquiring 3D seismic data over the Mputa and Waraga areas is currently being considered to better define the oil-bearing reservoir distributions and further prospects.

Block 3A - Kingfisher Exploration Well (E) (Tullow 50%)
The higher-risk wildcat exploration well to test the large Kingfisher structure is planned for early August using the Dafora F-200 rig which will start to move from the M'Puta-Waraga area by barge this week. The wildcat will target a large fault-closed and northwesterly dipping structure. The well will calibrate the stratigraphy in this unexplored part of the basin. As such, it may not have well-developed reservoir-seal configurations and the seismic definition of the basement is unclear, so exploratory sidetracking is therefore a possibility. The projected total depth of the well is up to 4,000m and it is expected to take approximately two months to drill.

The forward program in Block 3A is contingent on the results of the Kingfisher wildcat, however a number of prospects in the Block have been identified.

Forward program for Uganda
Following the very encouraging results from the Waraga-1 well, the plan for future drilling and seismic surveys in the area will be reviewed with our partners with a view to accelerating the exploration and appraisal program for the Albertine Basin. This campaign is likely to run into 2008 and possibly beyond, and will address a mix of technical success factors, geological plays, high-risk wildcats (e.g. Kingfisher-1), lower-risk play-extenders (e.g. Waraga-1) and appraisal of discoveries (e.g. MPuta-2).

The campaign will also methodically build on historic reconnaissance gravity surveys and 2D seismic surveys, by following through with higher resolution seismic acquisition and higher quality seismic processing as we focus on the most prospective targets.

The exploration and appraisal campaign will inevitably record a mix of positive and negative data as we further extend the boundaries of our knowledge of the Albertine Basin. Overall, however, the indications thus far remain very positive.


Ngosso Permit (E) (Tullow 40%)
In February Tullow completed a 410-square-kilometer 3D seismic survey over the Ngosso permit. This block contains three existing unappraised oil discoveries, Narendi, Odiong, and Oongue and numerous exploration opportunities. The survey data will provide information for selecting locations for a two-well program likely to be undertaken during 2007.

New ventures
Tullow maintains an active new ventures program in Africa and during the period announced its first entry into Madagascar, with a 50% operated interest in Block 3109, situated onshore in the Morondava Basin. Work on this block is due to commence in August 2006 with a 6,700-line-kilometer aero-gravity and magnetic survey; this will help to identify prospective areas for focused seismic acquisition in 2007.

The group is also negotiating the award of a number of new development and exploration licenses in West Africa and further announcements will be made in due course.


In South Asia, Tullow has exploration, development and production interests in Pakistan, Bangladesh, and India. Activities in the region have increased significantly in 2006, with extensive seismic programs in Pakistan and India and recent development activities on Bangora (Bangladesh) culminating in first production from the field and the successful drilling of the first appraisal well on the structure. All of these exploration and development ventures have the potential to materially enhance reserves and revenue from the region.

    Working interest                H1 2006 Average      Current Production
    production                      (boepd)              (boepd)

    Pakistan                           200                  200
    Bangladesh                         800                2,500
    South Asia Total                 1,000                2,700

    Block 9, Bangora-1 (A) (Tullow 30%)

The Bangora/Lalmai appraisal program, approved in early 2005, is now well underway. Production from the Bangora-1 well commenced on May 9 and the well is flowing at a stabilized rate of 50 mmscfd. An extensive 3D seismic survey was completed in February. All data have been processed and initial interpretation has resulted in selection of four appraisal well locations. The first appraisal well (Bangora-2), a 2-kilometer step-out from Bangora-1, was spudded on April 22 and reached the total depth on June 14. The well encountered good-quality gas-bearing reservoirs and has demonstrated sand continuity to the south of the discovery well. The well has been successfully completed over the main reservoir units and is likely to be tied in to the Bangora production facilities in the third quarter 2006. The drilling rig will now move to drill the Bangora-3 well, a 7-kilometer step-out to the south, that has the potential to add materially to the reserves associated with the Bangora-Lalmai structure. The plan is to continue the long-term test and appraisal program with the ultimate aim of achieving a declaration of commerciality during 2006.

Blocks 17&18 (E) (Tullow 32%)
A 2D marine seismic survey on Blocks 17 and 18 was completed in April 2006 and the data are currently being processed. Tullow has signed a farmout agreement with Total and an assignment of interest application has been submitted to the Government of Bangladesh. An application for an extension is also pending with the government. This extension would allow time to carry out an extensive seismic survey and drilling program on the blocks.


Chachar (D) (Tullow 75%)
The development project on Chachar is well-advanced. The first of two development wells was spudded on May 21. Having encountered the reservoir sands, it has been suspended as planned. The second well was spudded on June 15 and is scheduled to reach its target depth in July. A contract has been awarded for engineering, procurement and construction of field facilities, and production is scheduled to commence in the fourth quarter 2006.

Kohat (E) (Tullow 40%)
A 2D seismic survey was completed on April 18 and a total of 311 kilometers of data have been acquired. Data processing is ongoing and prospects have already been identified. Tullow plans to commence drilling the first well on this highly prospective block in the second quarter 2007.

Nawabshah (E) (Tullow 30%)
The Shahpur Chakar-1 exploration well, in the Nawabshah Block in Pakistan, was spudded on February 21 and reached a total depth of 3,385m. Although the well encountered shows during drilling, all viable reservoirs proved to be water wet.


Block CB-ON/1 (E) (Tullow 50%)
The 600-kilometer seismic survey, which commenced in December 2005, is continuing and has been extended to 1,500 kilometers to more precisely delineate a number of drilling leads at both the Tertiary and deeper geological intervals. Data processing has commenced, and it is anticipated that a multi-well drilling on this high-potential block will commence in the first quarter 2007.


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