9th Nov 2016 08:39
LONDON (Alliance News) - Tullow Oil PLC dealt a blow to shareholders on Wednesday by lowering its full year guidance for its new TEN project only months after producing first oil, but overall group production in 2016 should still be close to its revised guidance range.
Tullow shares were down 2.5% to 250.80 pence per share on Wednesday morning.
TEN began pumping oil in August and had managed to ramp-up to gross production of 50,000 barrels a day as it moved toward reaching full capacity of 80,000 barrels per day.
However, Tullow revealed "issues with the water injection systems" mean average annualised gross production in 2016 will only be 15,000 barrels per day - down from the previous guidance of 23,000 barrels.
On a net basis, the lower target means TEN will contribute 7,100 barrels per day to Tullow this year on an annualised basis rather than 11,000 barrels that it was originally expecting.
"Commissioning of the oil production, gas compression and water injection systems is ongoing and all systems are expected to be fully operational by year end. Production ramp up has been slower than expected due to water injection commissioning taking longer than planned which has limited the volume of water injected to date. This is in the process of being resolved and the system is now able to inject water at the design capacity," said the company.
The main Jubilee field, also offshore Ghana, has managed to recover well since suffering from loss of production due to damage to a turret bearing earlier this year, with gross production averaging around 100,000 barrels a day since August.
To put that into perspective, Tullow said at the end of the first half that Jubilee would average gross production of 74,000 barrels a day over the full year and 85,000 barrels per day in the second half.
Fortunately, the reduced output from TEN this year will be offset by the production-equivalent revenue at Jubilee covered by the insurance that is paying out for the loss of production and revenue from the issues earlier this year, alongside reimbursing the costs of fixing the problem.
Overall, Tullow now expects full year production across its West African operations to be in the range of 64,000 to 67,000 barrels per day, comparable to the previous guidance issued at the halfway point of 2016 of 62,000 to 68,000 barrels per day.
Prior to the issues with Jubilee and before TEN had started up, Tullow had an original target to produce 73,000 to 80,000 barrels per day in 2016 before lowering that guidance.
In Europe, working interest gas production continues to perform in line with expectations and full year net production is expected to be around 6,000 barrels per day.
"First oil at the TEN field, offshore Ghana, on 18 August 2016 was a key milestone for Tullow. Our major capital commitments came to an end and our low cost West Africa oil production is increasing substantially. As a result, we will start to generate free cash flow in this quarter and will begin the process of deleveraging our balance sheet," said Chief Executive Aidan Heavey.
"We have also made good progress with the turret remediation project at Jubilee and coverage has been affirmed with our insurers for the repair and business interruption," he added.
As Tullow prepares to exit 2016 with all major capital investments behind it, the company said it plans to refinance and pay down its debt in 2017, and also laid out plans to begin new exploration work.
Tullow plans to have completed the early oil pilot scheme in Kenya by "mid-2017", a four-well exploration campaign will be launched in the South Lockihar basin in Kenya in December 2016, front end engineering and design contracts for the development in Uganda will be awarded in "early 2017," and drilling will also continue on the Araku prospect offshore Suriname in 2017.
By Joshua Warner; [email protected]; @JoshAlliance
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