Tullow, Ophir Cut CAPEX amid Continued Low Oil Price

Two Africa-focused oil and gas companies, Tullow Oil plc and Ophir Energy plc, have cut their capital expenditure (CAPEX) for 2016 following a continued low oil price.

Although Tullow expects its CAPEX for 2015 to remain unchanged at around $1.9 billion, this figure will be cut to approximately $1.2 billion next year. Ophir will further cut its CAPEX to between $175 and $225 million in 2016, after reducing its capital expenditure in 2014 and 2015.

In addition to decreasing its CAPEX, Tullow has also decided to farm down 25 percent of its 65 percent operated working interest in Kenya’s Block 12A to Delonex and 20 percent of its interest in Suriname’s Block 54 to Noble. The company’s TEN development project in Ghana is around 75 percent complete and on schedule to deliver first oil in mid-2016. Tullow also stated that the Amosing-5A exploratory appraisal well in Kenya’s Block 10BB encountered an estimated 49 to 91 feet of net oil pay and successfully proved a northern extension to the Amosing field.

Aidan Heavey, Tullow Oil chief executive officer, commented in a company statement:

“Whilst 2015 has been a difficult year across the industry, we have taken appropriate steps within our business to meet the challenges presented by lower oil prices. We have focused our resources on our West African oil assets which, by 2017 with TEN on-stream, will be producing around 100,000 barrels of oil per day net to Tullow. We are also focused on managing our costs and ensuring that we have sufficient funding to meet all our commitments.”

Ophir Energy revealed Wednesday that it has finalized commercial terms, and is in the process of signing Heads of Agreement, with a “shortlisted group of counterparties” for LNG offtake from the Fortuna FLNG project in Equatorial Guinea’s Block R. Ophir expects all of the HoAs to be signed by the end of November, after which a further shortlisting process will commence to select one or two of these LNG Buyers to sign full Sales & Purchase Agreements in the first quarter of 2016.

Nick Cooper, chief executive officer of Ophir, said in a company statement:

“The finalization and signing of Heads of Agreement for the offtake with leading LNG players is another major step in de-risking the project on the run to FID (final investment decision). We are pleased that the agreements are for a total demand several times greater than the available offtake volume, but are not surprised because the project can deliver volumes into both the Atlantic and Pacific Basins in the top quartile of greenfield LNG project economics.”

A brief analyst comment from First Energy Capital stated that market reaction to Tullow’s developments has been “slightly positive”, due primarily to the results of Amosing-5A. First Energy also said that market reaction to Ophir’s news was “positive” because of the progress being made at the Equatorial Guinea LNG project but stated that “it will be difficult to attract upstream partners in a market oversupplied with assets and with challenging global gas prices".