28th Apr 2016 12:29
LONDON (Alliance News) - Tullow Oil PLC Thursday provided shareholders with good news after striking a deal with its lenders, revealing its flagship Jubilee field offshore Ghana will resume production in a matter of days and by making further cuts to its expenditure plans.
Tullow shares were trading up 9.1% to 274.30 pence per share on Thursday afternoon, the best performer in the FTSE 250.
Tullow said its lenders have completed the routine redetermination process of the company's reserve-based lending facility and have agreed to extend the maturity of the facility for 12 months, giving debt-laden Tullow some further breathing space during the current commodity rout.
The company's lenders have also extended Tullow's corporate facility until April 2018 and agreed to a further amendment to the financial covenant on both facilities.
Net debt at the end of April stood at around USD4.50 billion, rising from USD4.00 billion at the end of 2015, whilst free cash, including debt capacity, has fallen to USD1.30 billion from USD1.90 billion.
"These successful banking outcomes demonstrate the continued support of the group's lending banks during this period of low oil prices and the high quality of Tullow's asset portfolio," said the company.
Tullow has also continued to cut costs, reducing its capital expenditure guidance for the full year down to USD1.00 billion from USD1.10 billion, and said further savings are expected during the year.
The company's Jubilee field also looks set to get back on track imminently following the problems that were unveiled earlier in the year.
Production from its main Jubilee field was previously suspended earlier this year due to a problem with the turret bearing on the floating production, storage and offloading vessel, but Tullow said new offtake procedures are being implemented which should lead to production resuming "in the next few days".
A typical feature of an FPSO is the turret mooring system, which is usually fitted inside and integrated into the FPSO's hull. The turret is moored to the seabed with chains, wires and anchors and has bearings allowing free and unrestricted 360 degree rotation of the FPSO around the turret.
However, the damage to the turret means the FPSO cannot rotate as expected. As a result, Tullow had to use another ship to store oil extracted from the Jubilee field and introduce a storage tanker to keep operations going.
Tullow has already confirmed the problem can be fixed, but conceded it would take time for the new procedures to be implemented and for the company to secure the necessary approvals.
However, that resulted in production in the first quarter of 2016 coming in below expectations. Production from West Africa averaged 59,200 barrels of oil per day whilst production from its assets in Europe averaged 6,500 barrels of oil equivalent per day.
To put that production in the first quarter into some form of perspective, Tullow produced an average of 66,600 barrels a day from West Africa over the course of 2015, and the company was aiming to increase production from the area by around 13,400 barrels this year.
But the problems at Jubilee mean full year production is "likely to be below current guidance" of 73,000 to 80,000 barrels of oil per day, and that guidance will be revised downward once the field is back up and running, the company said.
"However, Tullow does not currently expect this issue to have a material impact on future cash flow, due to the imminent resumption of production and appropriate insurance policies in place," said Tullow.
Importantly, Tullow has already made clear that it has insurance policies in place to cover the costs of any damage and also to cover any lost revenue from the issue, alleviating concerns of what the impact will be on the company's operations and financial results.
Elsewhere, Tullow's major TEN development in Ghana remains on track and is over 90.0% completed, with first oil expected sometime in July or August this year. The FPSO for the project has been connected to subsea infrastructure through the risers and umbilicals and the commissioning of these systems is under way.
Six of the 11 pre-drilled wells on the field have been completed and the completion of the seventh well is underway.
As previously guided, TEN will pump out a total of around 23,000 barrels of oil per day once up and running later in 2016, of which around 11,000 barrels will be net to Tullow.
"It has been a very busy start to the year for Tullow. In West Africa, we have made excellent progress with the TEN project which remains on time and on budget while a highly experienced project team are dealing with the turret issues on the Jubilee field FPSO," said Chief Executive Aidan Heavey.
Moving back to Tullow's finances, the company has continued to hedge production to mitigate lower oil prices. The company said it has 38,749 barrels per day hedged in 2016 at USD73.10 per barrel, giving a mark-to-market value of around USD303.5 million.
Those hedged barrels are equal to over 58% of what Tullow produced in the first quarter of 2016, with that hedging price way ahead of current spot prices.
In 2017, Tullow has 27,000 barrels a day hedged at USD68.36 per barrel, giving a mark-to-market value of USD204.0 million. A further 9,500 barrels have been hedged at USD62.09 per barrel in 2018, carrying a mark-to-market value of USD42.6 million.
By Joshua Warner; [email protected]; @JoshAlliance
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