Tullow announced its half-yearly results for the six months ended June 30, 2010. These results are presented in US Dollars, the Group's presentational currency with effect from January 1, 2010.
2010 Half-yearly results summary
The Group had a strong first half. Results were up on the first half of 2009 reflecting a 30% increase in average commodity price realizations. While production declined by 6%, first oil from Ghana is expected before year-end and will result in significant production growth and increased cash flow in 2011.
- Jubilee project remains on schedule for first oil in November or December 2010;
- Heritage Ugandan assets acquired; finalization and planned farm-down to CNOOC and Total awaiting resolution of the Capital Gains Tax dispute with Heritage;
- Excellent exploration & appraisal performance year-to-date: 14 successes from 17 wells;
- New oil field discovered by Owo-1 in Ghana; accelerated appraisal of Owo & Tweneboa planned;
- Mpyo-1 discovers new oil field; discovered resources in Uganda now 1 billion barrels;
- Basin-testing exploration wells in West Africa and South America to be drilled in next 6 months;
- Full year production forecast increased to 57 - 58,000 boepd; and
- US $1.45B equity placing completed to support accelerated activities in Ghana and Uganda.
Commenting, Aidan Heavey, Chief Executive, said, "Tullow has continued to make strong progress in the first half of 2010. Our exploration and development programs are delivering excellent results with significant new oil discoveries being made in both Ghana and Uganda and first oil from Jubilee expected before year-end. With the balance sheet strengthened at the beginning of the year, and the expected proceeds from the Uganda farm-down, we will be very well funded to pursue our exploration-led growth strategy. We look forward with confidence to a promising second half of the year and strong performance overall in 2010."
2010 Half-yearly results highlights
- Exploration and appraisal success rate 82% year-to-date;
- Owo-1 in Ghana - significant light oil discovery, drilling operations continue on appraisal sidetrack;
- High impact six month drilling campaign to commence with Onyina-1 in September;
- 1H 2010 working interest production averaged 37,500 boepd;
- Jubilee development remains on track for November or December; and
- In Uganda, Heritage acquisition and related farm-down expected to complete in the coming months.
In the first half of 2010, Tullow progressed a series of transactions to align interests and accelerate development of the Lake Albert Rift basin which culminated in the purchase of Heritage Oil and Gas Limited's ("Heritage") interests in Blocks 1 and 3A on 26 July. The process to subsequently farm-down interests to CNOOC and Total, with each partner taking a one third interest in Blocks 1, 2 and 3A, is also well advanced. The Government of Uganda have however indicated that a dispute with Heritage over Capital Gains Tax needs to be resolved before the purchase from Heritage, and the subsequent farm-down, can be finalized.
Operationally, excellent progress has been made with a further nine successful exploration and appraisal wells drilled so far this year. Tullow's exploration and appraisal campaign of 35 successful wells out of 36 has now reached a significant milestone with an estimated 1 billion barrels (P50) of oil now discovered. In addition, the yet to find resources of 1.5 billion barrels (P50) remains unchanged.
Exploration and Appraisal activities continue to add resources
The successful exploration and appraisal campaign in Uganda has continued in 2010 with eight appraisal wells and the material Mpyo-1 exploration well all encountering hydrocarbons. These results have led to the estimated P50 resource base for Uganda being revised upwards from 800 million barrels at the beginning of the year to 1 billion barrels today.
The 2010 Ugandan drilling campaign commenced in January with the Kasamene appraisal program in Block 2 where the OGEC-750 rig drilled three wells: Kasamene-2, 3 and 3A. The program successfully identified a deeper oil-water contact and excellent reservoir quality throughout the structure. The Kasamene-3A well also made the Wahrindi-North discovery in an adjacent fault block. These positive appraisal results give strong support to the fast-track development of this field.
In May, the Nzizi-3 appraisal well was drilled, establishing reservoir connectivity with the Nzizi-2 well and proving the well's viability as a future gas producer for the integrated power project. The well also made a new oil discovery in the basal sand section. Following Nzizi-3, a successful well intervention was carried out on Waraga-1 in which a completion was installed for future testing operations.
In June, the OGEC-600 rig arrived in Block 1 and a comprehensive 2-rig exploration and appraisal campaign commenced across the Butiaba regions of Blocks 1 and 2. Four successful appraisal wells have been drilled so far; Nsoga-5, Kigogole-5 and Kigogole-2 in Block 2 and Ngiri-2 in Block-1. Of particular note is the result at Ngiri-2 which was testing a fault block adjacent to the Ngiri-1 discovery. The well proved up two oil zones taking the field resources to in excess of 100 million barrels. The well intersected 40 meters of net oil pay, the thickest pay so far encountered in the Butiaba area, demonstrating that after over 30 wells, the lake Albert Rift basin continues to deliver from the undrilled potential. Ngiri-2 will be flow tested later in 2010 and further appraisal drilling will also take place on the field in Q4 2010.
The Kigogole-5 and Kigogole-2 appraisal wells were drilled in July and August encountering 14 meters and 16 meters of oil bearing reservoir respectively. Kigogole-2 drilled into a large fault block adjacent to the Nsoga-1 discovery confirming a deep contact in common with the Nsoga-1 well. This fault block, and the Nsoga fault block, will be the site of a significant appraisal campaign in 2011. The combined Kigogole-Nsoga discovery has the potential to cover an area in excess of 70 sq km.
The OGEC-600 rig is now focusing on exploration drilling in Block 1 for the remainder of 2010. The first well in this campaign was Mpyo-1 which encountered over 32 meters of oil bearing reservoir in two zones. The discovery covers an area in excess of 20 sq km. Its updip extent is unclear and will need to be refined with further appraisal drilling. The well has also de-risked two large downdip fault blocks, the amplitude supported Miparaki and Gunya prospects which will be drilled in the forthcoming exploration campaign. The rig will now move north of the river Nile to drill the material Jobi-East prospect and to appraise the Jobi-Rii discovery.
In addition to the drilling, Tullow has been actively acquiring a 200 km 2D seismic infill survey over the key discoveries in the Butiaba Area and will commence the first part of a multi-phase 3D seismic acquisition program in October over the Kasamene, Wahrindi and Ngiri fields. This will subsequently be extended across the play to ensure that all Victoria Nile discoveries are developed in the most optimum fashion. Further seismic acquisition across Block 1 has commenced and is designed to appraise the existing discoveries, firm up some material leads and identify new exploration prospects for drilling in 2011.
Tullow was awarded two Congo (DRC) licenses adjacent to its Ugandan acreage on Lake Albert in 2006 through a transparent process in which a signature bonus of US $0.5 million was paid. Tullow have been awaiting ratification from the President ever since. However on 24 June 2010, it appears that the government awarded the licenses via Presidential decree to two British Virgin Islands-registered companies. Tullow has commenced legal proceedings to challenge that award.
The first half of 2010 has been a period of outstanding achievement for Tullow's operations in Ghana. The Jubilee FPSO arrived from Singapore in June and is now moored over the field, the subsea infrastructure is 85 per cent complete and within four months, first oil is expected to flow. Successful exploration in the high equity Deepwater Tano license has resulted in two major discoveries; Owo and Tweneboa. Further appraisal of these discoveries will commence with the Deepwater Millennium rig in the fourth quarter.
Jubilee Phase 1 development
Phase 1 of the Jubilee development project remains on track for first oil before year-end. This will be just 40 months since the field was discovered, a remarkable achievement for a major deepwater project in a new oil province.
During the first half of the year, FPSO construction work was completed and the vessel was named, 'Kwame Nkrumah', in honor of the First President of Ghana, at a ceremony in Singapore on 1 May before setting sail for Ghana. The major subsea equipment installation was also completed including the laying of all flowlines, control umbilicals and the deployment of all subsea trees on the Phase 1 wells. The FPSO, which arrived offshore Ghana in June, has been moored on station and riser installation work connecting the FPSO to the seabed flowlines is currently underway. In parallel, integration and commissioning work is taking place in advance of first oil production.
Phase 1 drilling operations finished in the first quarter of 2010 and were followed by well completion operations. A mechanical failure in the first completion (J-01) resulted in the need to workover the well adding time and cost to the project. However, the second completion (J-02) has been installed on schedule and is ready for production with a capacity exceeding 25,000 barrels per day. Due to time lost with the initial workover, the Sedco 702 rig will work in parallel with the Eirik Raude rig from late September to accelerate completion activities.
Production start-up is expected to commence in November or December 2010 and will ramp up to 120,000 barrels per day over the following three to six months. Pressure support from water injection will also be available at production start-up and gas injection shortly thereafter. The cost for the Phase 1 development is forecast at approximately US $3.35 billion, within 10% of the original US $3.15 billion budget.
In-country infrastructure work in Accra and Takoradi is essentially complete for both the project installation and the subsequent production phase. Tullow Ghana's new headquarters in Accra were officially opened in June.
Future Jubilee developments
Development planning of Phases 1a and 1b to extend Jubilee's production plateau and ensure optimization of field reserves is now well advanced. Phase 1a will involve 5 to 8 infill wells tied into existing infrastructure and Phase 1b, with further expansion of the subsea infrastructure, may involve up to 20 additional wells. Timing of these additional phases will depend on the performance of the Phase 1 wells and the FPSO vessel but sanction is likely within the next one to two years.
The drilling of the Mahogany-5 well in June completed the appraisal of the southeast Jubilee area following success in the previously drilled Mahogany-3, Mahogany-4 and Mahogany Deep-2 wells. The results of this program are now being incorporated into the field model and development planning is under way with both independent and satellite development options being considered. A Declaration of Commerciality report is expected to be submitted to the Government of Ghana by the West Cape Three Points Operator, Kosmos Energy, in September. This will be followed by further work on a development plan for the area to be submitted in 2011 which will confirm project reserves, timing and cost.
Exploration and appraisal activities
Exploration and appraisal activities in the first half of 2010 have continued to be successful in Ghana. In the Deepwater Tano license, appraisal of the Tweneboa field began in February when the Tweneboa-2 exploratory appraisal well intersected a significant combined hydrocarbon column and, combined with the Tweneboa-1 discovery in 2009, established Tweneboa as a major oil and gas-condensate field. To obtain further information regarding the characteristics of the hydrocarbons and reservoirs, and to support the extensive development studies which are already underway, two further Tweneboa appraisal wells are planned to commence in the fourth quarter of 2010. A flow test of one of the wells is also planned for early 2011.
In July, the Owo-1 oil discovery continued the extraordinary success of Tullow's West African Equatorial Atlantic campaign. The well, drilled by the Sedco 702 rig, intersected a 154 meter gross reservoir section with 53 meters of excellent quality light oil pay and established Owo as a major new oil field requiring further appraisal. In August, the Owo-1 well was sidetracked to test the lateral reservoir distribution and to intersect a deeper part of the Owo Channel system. Operations on the well are expected to complete within the next two weeks. The rig will then move to drill the high potential Onyina prospect which sits between the Tweneboa and Jubilee fields.
In the West Cape Three Points license, the Dahoma-1 exploration well was drilled in April to explore a down-dip satellite prospect within the southeast Jubilee area, outside of the main Jubilee Unit Area. It intersected good quality sandstone reservoirs below a possible oil-water contact and an up-dip test of this area is planned for early 2011.
The next well to be drilled in the West Cape Three Points block will target the Teak exploration prospect. This well will be drilled by the Atwood Hunter rig when it returns from drilling for another Operator in late 2010 and will be followed by a series of prospects including Dahoma Up-dip, South Central Channel, Odum East, Banda West and the South East Channel prospect.
Deepwater Tano discoveries - conceptual development work commences
Following the discoveries made at Tweneboa and Owo in the Tullow-operated Deepwater Tano license, conceptual study work has commenced with a dedicated team examining both technical and commercial aspects of development. The conceptual work will be carried out in parallel with the major appraisal drilling program which is scheduled to commence in the fourth quarter using the Deepwater Millennium rig.
Sierra Leone & Liberia
Interpretation of the 10,000 sq km of 3D data over Sierra Leone and Liberia is well advanced and has highlighted several prospects for drilling. One well, targeting the Mercury prospect, is now scheduled to be drilled in Sierra Leone in September 2010 by the Deepwater Millennium rig. In Liberia, the potentially high impact Cobalt prospect has had to be delayed until late 2010 or early 2011 due to competing rig priorities of the Owo and Tweneboa appraisal programs in Ghana. Meanwhile, the team continues to work with partners on the detailed interpretation of numerous follow-up prospects in this highly attractive play fairway.
Gross combined production from the Ceiba and Okume Complex fields averaged 110,000 bopd in the first half of 2010, exceeding expectations, with full year gross production expected to average 108,500 bopd. Nine wells have been drilled this year on Oveng and Elon within the Okoume Complex, completing the current phase of development drilling. To optimize the targeting of future infill wells, a time-lapse 3-D (4-D) seismic survey is to be shot over both the Ceiba Field and Okume Complex in the second half of 2010.
High end processing of the large 3D surveys acquired in blocks CI-103 and CI-105 in 2010 is well advanced. The emerging prospects are very encouraging and one well is scheduled for each block in 2011.
Production performance from the East and West Espoir Fields was marginally below potential for the first half of the year due to the planned shutdown for the hook up and commissioning of FPSO facility upgrades. These upgrades are designed to provide improved water handling, gas lift and gas export, as well as adding capacity to support future infill drilling projects on both fields. Gross production for 2010 is expected to average 19,350 boepd.
In the first half of 2010, Tullow's net production in Gabon averaged 12,700 bopd. The Echira and Tchatamba fields performed well and the Niungo field was enhanced by the addition of two-infill wells.
On the prolific Omoueyi block, the Onal and Omko fields, in which Tullow exercised its back-in rights in 2009, are performing well. In the same block, the Gwedidi and Mbigou fields are under long term test before development and Tullow expects to exercise its rights on these fields before year-end. Additionally, the Maroc North discovery, to the south of Onal in the Omoueyi block, is being appraised with a six-well drilling program which is expected to complete in early 2011.
In April, the Noix-de-Coco-1 exploration well was drilled on the Azobe exploration block and encountered wet gas within the Cretaceous interval. Sandstones within the main objective were however of poor quality at this location and the well has been plugged and abandoned.
Production from the Mboundi field has been stable at around 38,000 bopd (gross). This is still below expectations due to a combination of reservoir performance and delays in the ramp up of water injection. A temporary pumping system has allowed water injection to ramp up to 120,000 bwpd and a new pump is being installed to reach the targeted 200,000 bwpd rate later this year. In the meantime, infill drilling efforts are maintained to offset production decline with six rigs active on the field.
Regional evaluation of the Mauritanian acreage is at an advanced stage and detailed prospect specific mapping continues to define good drilling candidates. Seismic interpretation has focused on generating prospects in the Cretaceous turbidite sequences, which are similar to those being successfully explored in Ghana. The upcoming exploration drilling campaign will commence with two wells in the second half of 2010. In Block 6 the potentially significant Sidewinder prospect will be drilled. It is of particular interest, sharing several geological and geophysical characteristics with Owo in Ghana, however it carries higher risk, being a more frontier exploration target. In Block 7, the Pelican gas discovery will be appraised and the well will be deepened to penetrate the untested closure at the Cretaceous reservoir level. A rig has been contracted for commencement of these wells in October.
Significant progress has been made with both the partners and the Government in reviewing the development options that would allow commercialization of the Banda gas field. The development options are currently under discussion with the Mauritanian Government to ensure that they meet the Government's objectives.
Gross production from the Chinguetti field averaged approximately 8,400 bopd for the first half of 2010 and has declined in line with expectations.
The Likonde-1 exploration well located in the Lindi Block in the Ruvuma Basin of Southern Tanzania completed drilling in April. The well intersected two sandstone intervals of over 250 meters combined thickness with evidence of residual oil and gas. The valuable geological insights gained continue to be incorporated into the regional model before the second well in the program is drilled next year.
In August, Tullow agreed to farm-in to a 50% operated interest in Centric Energy's 100% owned Block 10BA in north-western Kenya subject to completion of due diligence, negotiating the necessary agreements and receiving Government of Kenya approval. This frontier acreage covers 16,205 sq km and will be evaluated for its possible long-term hydrocarbon potential.
Tullow is working with its partners NAMCOR, Gazprom International and Itochu to finalize the agreements required to underpin the new Kudu Production License awarded to the consortium in October last year. Work has commenced on revalidating and updating previous FEED studies. In parallel, NamPower and Gazprom International are working on establishing the downstream entity that will build, own and operate the proposed 800MW power station. Talks are ongoing with South African authorities as the targeted buyer of electricity in excess of Namibia's requirements.
REST OF THE WORLD - 2010 Half-yearly results highlights
Production from the Thames Area averaged 18 mmscfd net in the first half of 2010. Fields are facing natural decline but have performed well with high production efficiency throughout the period.
Production from the CMS Area averaged 55 mmscfd net in the first half of 2010 supported by strong performance from the Tullow-operated Schooner and Ketch fields. The Ketch infill well, KA8z was successfully tested at rates significantly in excess of expectations. Following the success of this well further infill drilling is under consideration. The KA8z well is currently being connected to the production systems and is expected to come on stream in late August at a rate of approximately 25 mmscfd.
Following E-block seismic reprocessing results, the 2010 technical work program has been developed to include a large (1,500 sq km) 3D seismic acquisition. This high spec shoot is planned to further de-risk a maturing prospect inventory. The acquisition is forecast to be completed in September 2010 and as a consequence of the revised work program, the first Tullow-operated Dutch exploration well is likely to be postponed to the second half of 2011 after the delivery and interpretation of the processed results.
Tullow, as a non-operator, will be participating in our first Dutch exploration well in Q3 2010. The well will target the Carboniferous Muscovite prospect which extends into Block E13b.
Following the successful completion of work program commitments and a detailed evaluation of the full subsurface dataset, our operated interest in this acreage has now been fully transferred to other parties within the Joint Venture.
Gross production from the Bangora field averaged 109 mmscfd in the first half of 2010. The field production efficiency has been high with the exception of a 17-day period in June when the field had to be shut-in for repairs to a short section of the export pipeline. Negotiations with the Bangladesh Government to finalize the award of offshore exploration Block SS-08-05 are on hold pending news on progress of a border dispute with India and Myanmar.
In the Kohat Block, the Shekhan-1 exploration well reached TD (2,810m) on February 4, after intersecting 45 meters of net gas pay in a gross interval of 93 meters in the Lumshiwal sandstone reservoir. Subsequent testing at over 15 mmscfd confirmed the presence of a potentially commercial high-quality gas reserve. The success at Shekhan-1 reduces risk at the adjacent Kohat Central lead and Kohat West prospect. Options now under consideration include an early production facility, seismic and drilling along the new de-risked play fairway.
After a successful farm-down process to Shell (33%) and Total (25%) in 2009, Tullow retained an interest of 39.5% in the 35,000 sq km Guyane Maritime license offshore French Guiana. A number of Jubilee-type leads have been identified in the south-eastern part of the block and the acquisition of a large 3D seismic program (2,500 sq km) was completed in early February 2010. Processing and interpretation of this dataset is ongoing and planning for the first well on the material Zaedyus prospect is continuing, with a target spud date of February 2011.
Interpretation of the Georgetown block 3D seismic data acquired in January 2009 has identified a number of prospects in the Upper Cretaceous and Tertiary intervals. A drilling program, to test the primary prospect with the Jaguar-1 well, is scheduled to commence during Q1 2011, whilst the other identified prospects are under continued evaluation.
The five-well drilling program on the onshore Coronie license is now scheduled to commence in Q4 2010.
On May 17, Tullow announced that it had signed a Heads of Agreement with Staatsolie in relation to Block 47, a 2,369 sq km deepwater exploration license offshore Suriname. The signing will enable the parties to finalize a Production Sharing Contract for the Block and enhance Tullow's portfolio of high-impact exploration acreage in the emerging Suriname-Guyana Basin with a view to commencing exploration activities including acquisition of new seismic data in 2011.
Following its announcement on July 6, 2010, Tullow Oil plc ("the Company", together with its subsidiaries, "the Group") has changed its presentational currency from sterling to US dollars with effect from 1 January 2010, due to the majority of oil revenues and costs now being dollar denominated.
Tullow's half-yearly results are in line with expectations and primarily reflect higher average price realizations which increased by over 30% in the period offset by a 6% decrease in production to 55,800 boepd. Profit after tax increased 184% to $89.0 million (1H2009: $31.3 million) and earnings per share increased 134% to 9.4 cents (1H2009: 4.0 cents).
Working interest production averaged 55,800 boepd, in line with expectations but 6% below the corresponding period in 2009. This reduction was due to natural decline in mature fields and deferred production due to the reallocation of capital to development projects and high-impact exploration. Sales volumes averaged 44,200 boepd, representing a decrease of 17%, principally due to changes in the proportion of sales arising from Production Sharing Contracts (PSC).
Realised oil price was US $77.0/bbl (1H2009: US $53.0/bbl), an increase of 45% and realized gas price was 34.0p/therm (1H2009: 42.4p/therm), a decrease of 20%. Tullow's oil production was sold at a discount of 2% to Brent during the period (1H2009: 2% discount).
Increased commodity prices were partially offset by lower sales volumes resulting in an overall revenue increase of 11% to $485.9 million (1H2009: $438.5 million).