12th Nov 2014 08:17
LONDON (Alliance News) - Tullow Oil PLC Wednesday said it must focus its capital expenditure on more commercially viable prospects in Africa such as its TEN development project, and away from exploration, due to weak oil prices and an under-par performance from its European projects.
Tullow expects its pretax operating cash flow before working capital for the full year to reach around USD1.70 billion. Capital expenditure is expected to reach approximately USD2.10 billion by the end of the year, in line with expectations, said Tullow.
Capital expenditure for 2015 has not been finalised, but the company is expecting it to be in the region of USD2.0 billion, with USD900 million of it being spent on its TEN development project in West Africa.
Net debt for the full year is expected to total USD3.20 billion, with headroom through its available debt facility and cash of USD2.30 billion.
"In light of the re-allocation of capital investment towards core producing and development assets, and away from exploration, the board is in the process of reviewing the group's three year investment plan and past capitalised costs," it said in a statement.
"The main focus of the review is on French Guiana, where we have significant costs booked for the Zaedyus discovery and subsequent appraisal wells; and on Mauritania where a decision will be made on which licences to retain and the future plans for the Fregate discovery. While significant upside potential exists, if the board decides not to allocate near-term capital to these areas, substantial non-cash exploration write downs will be required for the full year," it added.
Its TEN development project in West Africa is expected to generate significant value and cash flow for the company and will attract the greatest share of capital in 2015, and remains on track and on budget and is still set to be 50% completed by the end of 2014, said Tullow.
During the first half of the year, Tullow has drilled the first eight wells at the TEN project ahead of schedule, above its target to have only five wells in place by the end of the period.
In all its operations throughout West and North Africa, Tullow's interest in shared production remains on target for the full year, with a guidance of between 64,000 to 68,000 barrels of oil per day.
Due to the weaker oil prices and reduced commercial success from offshore drilling, deepwater wells are not the focus for Tullow, which intends to focus on its onshore Africa portfolio in Uganda and Kenya.
In 2015, Tullow expects to reduce net exploration and appraisal capital expenditure to around USD300 million and will continue to seek new low cost exploration acreage in its core areas of Africa and the Atlantic Margins, it said in a statement.
Tullow said it will continue to maintain a conservative financial framework and concentrate on an rigorous approach to both capital allocation and cost control across the group. Tullow is focusing on maximising value from its asset base and positioning its business to benefit from improved market conditions in the future, said the company.
Average working interest production guidance for the full year remains on track for West Africa, however, European production has been impacted by under-performance from the Schooner, Ketch and Katy fields, said Tullow.
Gas production in the Netherlands remains in-line with expectations, but the average working interest production from Europe for the full year, taking into account asset sales, is now expected to be around 12,000 barrels of oil equivalent per day.
"In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success. In 2015, we will be focusing our capital spend on producing and development assets, particularly in West Africa where, by 2017, the group expects to be producing, net to Tullow, over 100,000 barrels of oil per day of high quality, high margin oil," said Chief Executive Aidan Heavey.
Tullow shares were up 1.7% to 490.40 pence per share Wednesday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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