Tullow Oil Issues Operational and Trading Statement
Tullow Oil issues this combined Trading Statement in respect of its financial year to December 31, 2005 and Operational Update in respect of Production, Development and Exploration activities during the period September 2005 to January 2006.
Tullow is a leading independent oil and gas, exploration and production group. The Group has interests in over 90 production and exploration licenses in 16 countries and focuses on three core areas: NW Europe, West Africa and South Asia.
The Trading Statement is in advance of the Group's Full Year Results, which are scheduled for release on March 29, 2006. The information contained herein has not been audited and is subject to further review.
Trading for 2005 was at record levels, with a strong production performance combining with continuing favorable oil and gas pricing.
Production and Reserve Enhancement -- In 2005 the Group drilled 50 development wells and completed the operated Horne and Wren development increasing average Group working interest production to 58,450 boepd, 44% ahead of the average for 2004. -- Current group working interest production is approximately 66,000 boepd with Tullow's net UK gas production contributing at an all time high of 200 mmscfd.Further strong production growth is expected from the ongoing development of the Schooner and Ketch fields, the Okume Complex and the M'Boundi, West Espoir, Bangora and Chachar fields. -- Working interest production in 2006 is anticipated to average approximately 68,000 boepd and to reach 75,000 boepd by year end. -- Drilling activity on the Schooner and Ketch project will be enhanced by a second rig to drill the Schooner NW Extension prospect during Q2 2006. Exploration and Appraisal Drilling -- During 2005, 11 exploration wells were drilled including the recent wells in Angola, Mauritania and Uganda of which five discovered hydrocarbons. -- The Mputa-1 discovery in Uganda has proved the existence of a working petroleum system in the basin, which has significantly reduced the risk on Tullow's prospects in this extensive region. A second well will be drilled in February on the Waraga-1 prospect. -- UK exploration has been particularly successful. The K3 discovery significantly boosts the potential of adjacent blocks where numerous prospects have been identified of which four will be drilled as part of the 2006 drilling campaign. -- Over the next three months a further eight exploration wells will be drilled including three wells in the UK and high impact wells in Uganda and Equatorial Guinea. -- A rig has been contracted to drill two appraisal wells on Kudu, to test the significant upside potential of this gas field, and will start drilling in early 2007. Commenting today, Aidan Heavey, Chief Executive of Tullow said:
"The strong asset performance and production growth seen in 2005 is expected to continue with significant ongoing development projects in each of our core areas. This development work will be complemented by an exciting exploration program that includes a number of wells in regions with very high impact potential."
There will be a conference call at 09:30 (EST) today, hosted by Tom Hickey, Chief Financial Officer of Tullow Oil plc:
For US participants please call (718) 354-1152 and request to be connected to the Tullow Oil teleconference.
A replay facility will be available from one hour after the conference call until 18:00 (EST) on Tuesday, February 7. Please call (718) 354-1112, access code: 1702489#.
This trading statement is provided for the year ended December 31, 2005 in advance of the Group's 2005 Preliminary Results, which are scheduled for release on March 29, 2006. The information contained herein has not been audited and is subject to further review.
Group working interest production for the second half of 2005 averaged 59,550 boepd, giving a 2005 average of 58,450 boepd, which is 44% ahead of the 2004 production level.
A further breakdown of these figures is provided in the Operational Update under 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 terms of Production Sharing Contracts. The production figures include 5 months production from the Alba and Caledonia fields and 7 months production from the Nkossa field (offshore Congo (Brazzaville)) prior to their disposals and 9 months of production from Schooner and Ketch following completion of the acquisition in late March 2005.
Working interest production for 2006 is expected to average approximately 68,000 boepd, with year end production reaching 75,000 boepd.
At December 31, 2005, Tullow was in a net overlift position amounting to an estimated 98,000 barrels. Such overlift positions are valued at market value and accordingly a charge of approximately 8.2 million Pounds Sterling will be made to Cost of Sales. In addition a charge of 5.5 million pounds in respect of the Alba and Caledonia overlift position at the time of disposal has been made to cost of sales; an equal and opposite amount has been recognized as part of the profit on disposal and consequently the net impact on the income statement is zero.
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. Based on current estimates, Tullow's exploration write-off for 2005 is expected to be of the order of 25 million pounds subject to any further technical work.
The Group completed the disposal of the Alba and Caledonia offshore assets in the UK and the offshore Congo (Brazzaville) assets in June and August 2005 respectively. In addition, final income has been recognized in relation to incremental consideration receivable based on reserves and performance of the Horne and Wren fields. The profit on disposal amounts to 40.1 million pounds (inclusive of 5.5 million pounds of overlift outlined above).
During 2005 Tullow invested a total of 192 million pounds in development and exploration activities.
Planned capital investment during 2006 is in the order of 280 million pounds, of which approximately 70% will be spent on development activities in the UK, Gabon, Congo (Brazzaville), Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladesh with the balance focused on exploration activities.
Net Debt and Refinancing Initiatives
Net Debt at December 31, 2005 was 138.7 million pounds, inclusive of all cash balances.
In September 2005 the Group completed an $850 million refinancing exercise. This exercise consolidated existing borrowings into a single facility, which has created a more efficient Group financing structure, has materially reduced cash collateralization and has created significant flexibility for future growth.
International Financial Reporting Standards (IFRS)
The Group has adopted IFRS with effect from January 1, 2004, with the exception of IAS 39, which has been adopted effective January 1, 2005.
IFRS 2 - Share based payments, requires that the fair value of all share based payments are charged through the income statement over the vesting period of the relevant awards. The charge in the income statement for 2005 is of the order of 1.5 million pounds.
IAS 39 - Financial Instruments, requires all derivatives to be recorded on the balance sheet at market value. At December 31, 2005 the Group's portfolio of derivatives had a negative mark to market value of 140.4m pounds. The majority of the Group's arrangements qualify for hedge accounting and will therefore be largely reflected in the Income Statement as the related contracts mature. Effectiveness testing has been undertaken on all the Group's hedges and due to the variations in crude oil discounts and gas nomination patterns there has been a degree of hedge ineffectiveness. However it is anticipated that the charge recognized in the Income Statement for the year ended December 31, 2005 will not differ materially from the charge of 5.6m pounds recorded for the first six months of the year.
At January 24, 2006 the Group's hedge position to the end of 2007 is as follows: Oil Hedges H1 06 H2 06 2007 Volume - bopd 10,242 11,217 6,000 Average Price* - $/bbl 41.0 43.7 41.9 Gas Hedges H1 06 H2 06 2007 Volume - mmscfd 81.7 42.5 10.0 Average Price* - p/therm 57.1 41.5 59.2 * Average hedge prices are based on market prices as at January 24, 2006 and represent the current value of hedged volumes Operational Update
This Operational Update summarizes recent key activities in the Production (P), Development (D), Exploration (E) and Appraisal (A) assets of Tullow Oil plc.
1) NW EUROPE CORE AREA UK
In the UK North Sea, Tullow's principal interests are in the Southern Gas Basin. During 2005 Tullow consolidated its position and influence in the region through the acquisition of the Schooner and Ketch assets, active participation in the 23rd licensing round and the drilling of 3 exploration wells. Each of these factors has contributed to the Group's strong production growth in this core area enabling UK production to recently reach an all time high of 200 mmscfd.
Working interest production 2005 Average Current Production (boepd) (boepd) UK Southern North Sea (1) 22,245 33,000 UK Oil 2,168 Assets Sold UK Total 24,413 33,000 (1) Includes condensate Schooner (P/D) (Tullow 90.35%) and Ketch (P/D) (Tullow 100%)
The facilities maintenance campaign implemented last year has already significantly improved the uptime of the assets to over 95% and increased production potential to over 50 mmscfd.
The field redevelopment program commenced in November 2005 with the arrival of the Ensco 101 drilling rig to drill five new wells and conduct nine workovers on the Schooner and Ketch fields. The first of these wells, Schooner-10, was spudded on November 24, 2005 and is expected to be completed in February. The drilling of Schooner-10 will be followed by the re-drilling of Schooner-7, an existing but non-producing well. A concurrent campaign of stimulation and remedial work on the existing production wells is also ongoing. The rig will then move to the Ketch field and drill three development wells and conduct a well optimization program on existing producing Ketch wells.
A second rig, the Borgsten Dolphin, has recently been contracted to drill the NW Schooner Extension appraisal area during Q2 2006. This opportunity has been accelerated to minimize weather downtime by drilling during the summer months and, if successful, to benefit from 2007/08 winter gas prices.
McAdam (P/D) (Tullow 14%)
First production from the McAdam infill development well, an extension of the CMS III project, commenced on October 13, 2005 adding incremental gross production in excess of 50 mmscfd.
Murdoch (P/D) (Tullow 34%)
The Murdoch D10 well, a sidetrack of the D4 well that has been shut in since 1998, was completed at the end of December and put on production on January 18, 2006 at a gross rate in excess of 30 mmscfd.
UK Exploration (E)
The K3 exploration well (Tullow 22.5%) in block 44/23b completed drilling in September 2005, having encountered excellent quality gas bearing sands in the targeted Lower Ketch interval. Development planning is now under way. The success of this well gives a significant boost to the exploration potential of the adjacent blocks where numerous further prospects have been identified, four of which will be drilled in 2006.
Four of these prospects will be drilled in 2006, the first, to test the Humphrey prospect in block 44/16 (Tullow 17.5%), was spudded on January 3, 2006. This well is expected to reach its target depth during February and will be followed by a well on the K4 prospect (Tullow 22.5%) in block 44/23b. A second rig has been contracted to drill the Cygnus prospect in block 44/12 (Tullow 35%), and is scheduled to commence in the first week of February.
The fourth of these prospects and up to three further exploration wells are planned for later in 2006.
Costisa-1 (EPI-3) (E) (Tullow 42.06%)
The Costisa-1Z exploration well, located in the EPI-3 Brates block in Romania, reached a final total depth of 4,350m on November 30, 2005. An approved abandonment program was performed and the Romanian authorities granted the well "abandoned with conservation" status. This will enable future re-entry if required. Tullow will relinquish operatorship at the end of the First Exploration Period.
2) AFRICA CORE AREA
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. During 2005 Tullow undertook significant development and drilling work in its producing assets, whilst maintaining an active exploration and New Ventures effort throughout the region. The Production and Development successes in the Group's African assets continue to contribute to strong production growth. African production is expected to reach 40,000 boepd in 2007. The recent Exploration successes in Mauritania and Uganda also provide enormous encouragement for the future of both basins.
Working interest production 2005 Average Current Production (boepd) (boepd) Congo (Brazzaville) 6,052* 6,600 Cote d'Ivoire 4,039 4,350 Equatorial Guinea 6,052 5,450 Gabon 17,480 16,800 West Africa Total 33,623 33,200 * includes 1,166 boepd in respect of disposed interests Republic of Congo (Brazzaville) M'Boundi Field (P/D) (Tullow 11%)
The development and infill drilling program on the M'Boundi Field continued throughout 2005 and is ongoing, with 11 successful wells completed since September 2005. These wells were primarily infill wells targeting the higher productivity reservoir in the northeast and the thicker section of the lower quality reservoir in the west. Current gross field production is 60,000 bopd, with 40 wells currently on stream. Four rigs are currently in operation with a fifth rig en route. Engineering work at the export terminal was completed at year-end to facilitate the blending and export of M'Boundi crude with the higher quality N'Kossa blend, thus significantly improving per barrel realizations. The further expansion of the production facilities to 90,000 bopd is in progress, with long lead items already on order. A water injection pilot project will be undertaken during 2006 and if successful will be expanded to the full field.
Ceiba Field (P/D) (Tullow 14.25%)
The infill drilling program continued throughout 2005, most recently two injection wells C-28i and C-29i were drilled to support the central and southern field production areas. The first of these wells was completed in September 2005 and C-29i is being completed at present. In the third quarter 2005 the C-30 production well was drilled and successfully brought on production in December. This infill drilling program maintained gross field production in excess of 40,000 bopd throughout 2005; this infill program will continue through 2006, with four producers and two injection wells planned.
Okume Complex Development (D) (Tullow 14.25%)
The Okume Complex comprises the Okume, Oveng, Ebano and Elon fields. Two Tension Leg Platforms (TLPs), being constructed in Korea, are nearing completion and will be installed on the deepwater fields Okume, Ebano and Oveng in March/April 2006. The Central Processing facility and other shallow water facilities for the Elon field are being constructed in the US Gulf Coast. These facilities will be installed in two phases, concluding in September 2006. Drilling is expected to commence with a shallow water jack-up rig and a tender assisted semi-submersible rig in late 3Q 2006. The development remains on budget and on schedule for first oil by year end 2006. Oil will be blended with Ceiba and exported via the Ceiba FPSO.
East Espoir Field (P/D) (Tullow 21.3%)
Two of the planned infill production wells, EP-7 and EP-8 are now on production. These wells have produced beyond expectation, contributing in excess of 5,000 boepd each to the increased average field production for the fourth quarter of 25,440 boepd. The third infill well, EP-10, a challenging 4.5km step-out, was drilled in the last quarter of 2005 and the fourth and final infill well EP-9 is currently in progress. These two wells are expected to be on production by end Q1 2006 and are expected to increase field production by a further c.7,500 boepd.
West Espoir Development (D) (Tullow 21.3%)
Progress on the West Espoir development project is well advanced. The jacket and wellhead tower were successfully installed in November 2005, all pipelines have been laid and successfully tied back and the Espoir FPSO upgrade is complete. Drilling is expected to commence in May with first oil scheduled for the third quarter of 2006. Three production wells and the commencement of the first West Espoir water injection well are planned for 2006.
Niungo (P/D) (Tullow 40%)
The final well in the 2005 Niungo development and appraisal program, Niu 28, was brought on stream in December. Following the success of the 2005 program an additional five infill wells and a minimum of two step-out appraisal wells are planned for 2006.
Tchatamba (P/D) (Tullow 25%)
A number of electrical submersible pump failures reduced the output from the Tchatamba field by 22% in the second half of 2005. These problems have now largely been resolved and the field is producing approximately 30,000 bopd.
Gabon Exploration (E)
The Tullow-operated exploration well on the Equata prospect (Tullow 47.5%) commenced drilling in early December. The well was unsuccessful as the results indicated likely compartmentalization of the structure which would make development sub-commercial. The well has been plugged and abandoned.
Up to four further Gabon wells are planned for 2006, the Akoum-West prospect (Tullow 100%) commenced on January 16 and is expected to complete in February.
Kudu (D/A) (Tullow 90%)
Good progress has been made in relation to both the first phase of commercialization of the Kudu gas field, offshore Namibia, via a gas-to-power generation project and the appraisal of the significant upside potential.
Following completion of the Front End Engineering Design (FEED) study a prequalification inquiry was issued for the four well subsea development and onshore gas conditioning plant. Invitations to bid for the various construction activities are expected to be issued during 2006. In parallel with these technical preparations significant progress has been made on the commercial and regulatory arrangements. The Ministry of Mines and Energy in Namibia has approved the production license for the Kudu field area and the Gas Sales Agreement negotiations are nearing completion in parallel with the Power Purchase Agreement negotiations between Nampower and Eskom.
The planning of the two well appraisal program, to prove the potentially significant upside reserves within the Kudu field, has advanced to the point of procuring all the long lead items and contracting a rig to start drilling in early 2007.
Block 2 (E) (Tullow 50%)
The Mputa-1 exploration well in Uganda commenced drilling on December 22, 2005 reaching its target depth of 1,186 meters in early January 2006. The well encountered oil zones over a 221 meter interval and oil samples were recovered from an upper interval between 965 and 975 meters. The well is now being cased and suspended for potential future re-entry. The results are very encouraging as they prove the existence of a working petroleum system in the extensive Albertine basin in which Tullow has a 50% interest throughout.
While it is too early to determine the size or potential commerciality of Mputa-1, the results significantly reduce the risk of the prospects mapped in Blocks 2 and 3A. The rig will now move to the Waraga-1 location, where drilling is expected to commence in mid-February. The Waraga prospect is a deeper well of 1,650 meters and has an anticipated well duration of approximately 20 days. Tullow is also in discussion with partners in relation to the potential drilling of the Kingfisher well in Block 3A as part of the current program.
Block 1 (E) (Tullow 20%)
The Faucon-1 exploration well in Block 1 offshore Mauritania was drilled in December 2005 and reached a total depth of 4,170m, encountering a total 96.5m of potential reservoir of which the upper 14m is hydrocarbon bearing. The hydrocarbon fluid samples recovered from the well are currently undergoing laboratory analysis. While the hydrocarbons encountered are unlikely to be commercial on a standalone basis, the discovery of a working petroleum system in this under-explored region provides encouragement for Tullow's regional position in Mauritania and the adjacent St Louis block in Senegal.
Block 10 (E) (Tullow 15%)
In November 2005 Tullow concluded a farm-in agreement with Sonangol P&P to assume a 15% interest in Block 10 offshore Angola. A two well exploration program commenced in early November and concluded on December 15 with both wells being plugged and abandoned. Although the wells did not encounter commercial hydrocarbons, they provided critical information to allow further evaluation of the prospectivity of this largely unexplored block.
Block 24 (E) (Tullow 15%)
In January 2006 Tullow concluded a farm-in agreement with Ocean Angola Corporation, a subsidiary of Devon Energy, to assume a 15% interest in Block 24 offshore Angola. A well commenced drilling on the Kabetula-1 prospect in the block on December 22, 2005 but failed to discover hydrocarbons and was plugged and abandoned.
Both Block 10 and Block 24 are expected to yield further high impact opportunities.
3) SOUTH ASIA CORE AREA
In South Asia, Tullow has production, development and exploration interests in Pakistan, development and exploration interests in Bangladesh and exploration interests in India. While activity in this region was limited in 2005, the initiation of production from the Chachar and Bangora projects, along with ongoing exploration and appraisal work in Pakistan, Bangladesh and India have the potential to materially enhance reserves and revenue from this core area.
Working interest production 2005 Average Current Production (boepd) (boepd) Pakistan 413 250 South Asia Total 413 250 Bangladesh Block 9, Bangora-1 (A) (Tullow 30%)
The Bangora/Lalmai Appraisal Program, approved in early 2005, made significant progress during Q3/Q4 2005. The processing equipment for the long term test is in transit to Bangladesh, and the Bangora pipeline has been installed. It is planned that installation and commissioning of the facility will be completed in the first quarter of 2006, with first gas at an anticipated rate of 50 mmscfd in the second quarter. A 3D seismic program over the entire Bangora-Lalmai structure is well advanced and the two well drilling program with two further optional wells is scheduled to commence in the second quarter.
Blocks 17 and 18 (E) (Tullow 32%)
In December 2005, Tullow reached agreement to farm out a 60% interest in Blocks 17 and 18, offshore Bangladesh, to Total. Tullow will retain a 32% interest and Operatorship of the blocks.
Chachar (D) (Tullow 75%)
Following the approval by the Government of Pakistan of the development of the Chachar field, the design of the wells and production facilities have been finalized. It is planned to drill two wells in the second quarter with production scheduled to commence in the third quarter of 2006 at a rate of 20 mmscfd.
Kohat (E) (Tullow 40%)
Following award of the highly prospective Kohat Block in early 2005, a seismic test line was acquired in November 2005, and the full survey is scheduled to commence shortly.
Block CB-ON-1 (E) (Tullow 50%)
The acquisition of approximately 1,200 km of 2D seismic commenced in December 2005 on the high potential CB-ON-1 block in the Indian Cambay Basin. It is anticipated that acquisition and processing will be completed in the second quarter of 2006 and that the first well will be drilled in early 2007.
This announcement contains certain operational and financial information in relation to 2005, which is subject to final review and has not been audited. Furthermore it contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil & gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable, the actual outcome may be materially different owing to factors either within or beyond the Group's control, and accordingly no reliance may be placed on the figures contained in such forward looking statements.
For further information please refer to our website at www.tullowoil.com Contact: Chris Perry Tullow Oil plc + 44-20-8996-1000 - or - Brian J. Rafferty Taylor Rafferty 212-889-4350
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