6th Sep 2006 07:02
Tullow Oil PLC06 September 2006 Record 2006 Interim Results 6 September 2006 - Tullow Oil plc (Tullow), the independent oil and gas,exploration and production Group, announces its interim results for the sixmonths ended 30 June 2006. These results have been prepared in accordance withthe Group's policies under International Financial Reporting Standards (IFRS). 2006 Interim Results Tullow had a strong first half of 2006. Trading and production reached new highsand combined with continuing favourable oil and gas pricing led to recordprofits and cash flow from operations. 1H2006 1H2005 % Change £ millions £ millionsSales Revenue 310.7 201.4 Up 54%Operating Profit 161.0 104.4 Up 54%Profit After Tax 95.4 63.1 Up 51%Operating Cash Flow before Working Capital 236.4 116.4 Up 103% Stg p Stg pBasic Earnings per Share 14.72 9.82 Up 50%Interim Dividend per Share 2.00 1.00 Up 100% • 10% increase in average half year working interest production to 62,800 boepd • Current production is c.70,000 boepd and is expected to reach 75,000 boepd by year end • Prospective acreage acquired in Ghana, Angola, Congo (DRC) and Madagascar • Exploration success: three oil discoveries in Uganda, three UK gas discoveries • Uganda: Encouraging well results leading to basinwide exploration campaign • First oil delivered from West Espoir, Okume project on track Commenting today, Aidan Heavey, Chief Executive, said: "Today's record results demonstrate the quality of Tullow's portfolio andcontinued growth of its business. While competition for resources, talent andquality acreage is intense, our strategy, based on key skills and wellunderstood regions, has proven effective. In the short term, we remain on trackto achieve our production target of 75,000 boepd by the end of the year, whilerecent exploration results in Uganda and the programmes planned in India andNamibia provide outstanding opportunities for growth. The outlook for Tullowremains very positive." Presentation, Webcast and Conference Calls In conjunction with these results Tullow will conduct a presentation in Londonand a number of events for the financial community. Details are available onpage 17 of this announcement and in the 2006 Interim Results Centre on theGroup's website at www.tullowoil.com. Production and Development Review The first half of 2006 has been a period of intense activity and significantsuccess for Tullow. The Group's strategy to develop a balanced long term oil andgas business is showing excellent progress in each of our core areas, while ourbusiness development efforts have added seven new licences to our portfolio,with further additions anticipated over the remainder of the year. Tullow has a strong track record of performance and innovation in ouroperations, exploration and commercial activities, supported by strong EHSperformance. We have assembled a professional team with the skills andexperience to build on this foundation. In the short term, we remain on track toachieve our objective of 75,000 boepd of production by year end, while recentexploration results in Uganda and programmes planned for India and Namibiarepresent outstanding opportunities for growth. NW EUROPE: Continued Exploration and Development Success in the SNS Tullow has steadily expanded its UK business through a combination ofacquisitions, organic developments, exploration and participation in licensingrounds. The Group has developed a reputation as a technically innovative andcommercially astute operator and has positioned itself to take advantage of avery favourable UK gas market. Thames-Hewett Area Production from the Thames-Hewett Area averaged 12,400 boepd (74 mmscfd) in thefirst half of 2006. The strategy for these mature assets has been to focus onthe control of unit operating costs through management of fixed costs andmaximisation of production, thereby extending field and infrastructure lives. This strategy has been very effective, increasing uptime of the Tullow-operatedHewett-Bacton assets to 98% for the period and significantly enhancingproduction through the restoration of the Delilah field in March. In addition,Tullow increased its interest in this asset to 51.68% by acquiring a further12.87% from Centrica in July. In the Thames area, the development of the Thurne satellite field is progressingwell and will add approximately 30 mmscfd to Thames throughput from late 2007.Additional satellite development opportunities are currently under review totake full advantage of our extensive infrastructure. In May, as winter/summer gas price differentials reached unprecedented levels,Tullow took the decision to shut in the Horne & Wren fields for the summermonths to permit maximum production from these fields during the winterperiod, when gas demand and prices are high. CMS Area Production from the CMS Area averaged 15,600 boepd (94 mmscfd) in the first halfof 2006. In this less mature region of the Southern North Sea (SNS) our focushas been on exploration, exploitation of near-field development opportunities,redevelopment of the Schooner and Ketch fields and third party business. In the first half of 2006 production from the area was 35% higher than for thesame period in 2005 through strong performance from the Murdoch D10 and McAdaminfill wells and the success of the programme of production optimisation andredevelopment on Schooner and Ketch. Elsewhere in the CMS area, plans are well advanced for the development of the K3(Kelvin) discovery, made in September 2005. The Kelvin infrastructure will be animportant new hub for Tullow equity gas in the CMS area and, following thesubstantial K4 discovery in June 2006, this region will be targeted with atleast two further exploration wells during 2007. Maintenance and integrity work on Schooner and Ketch has resulted inconsistently high uptime, averaging 98% over the period. The Schooner SA-10development well came on stream in May and combined with strong operationalperformance and the ongoing well optimisation programme, field productionpotential has stabilised at approximately 65mmscfd. The second development well,Ketch KA-7, is currently being completed and is expected to commence productionin early October. Two further wells will now be drilled on the Ketch fieldbefore the rig returns to Schooner in the second quarter of 2007. The NW Schooner appraisal well, targeting an extension of the main Schoonerfield is currently drilling through the reservoir. If this well encounterscommercial gas, it will be brought on stream within 12 months as a one wellsubsea tie-back to the Schooner platform. Africa: Developments delivering Production Growth In Africa, Tullow has established production and development interests in Gabon,Cote d'Ivoire, Congo (Brazzaville), Equatorial Guinea and Namibia. In 2006, theGroup has added new projects in Angola and Ghana, each with near-termdevelopment potential. In line with its strategy, Tullow continues to expand its African portfolio,building a truly pan-African business. In 2006, the Group announced thesignature of seven new licences in Congo (DRC), Angola, Ghana and Madagascar andexpects to announce participation in further new exploration and developmentlicences in West Africa in the coming months. Gabon Production from the fields in Gabon has been maintained at levels close to16,000 bopd through a combination of effective reservoir performance and ongoingwell optimisation programmes. Following the extensive development and appraisal programme undertaken at Niungoin 2005, a new programme of at least eight wells commenced in early September.The drilling programme will continue into 2007 and additional wells will beadded subject to success. Tchatamba production has been maintained at higher than anticipated levels,despite periodic mechanical and electrical problems at the facilities. Athorough review of well productivity has resulted in a well optimisationprogramme, which is now under way. In the Etame licence area, gross field production is stable at over 18,000 bopd.The development of the adjacent Avouma field is in progress with first oilscheduled for the end of 2006, while development of the Ebouri satellite fieldawaits Government approval. The Azobe licence, where Tullow has increased its interest from 35%(non-operated) to 60% as operator, contains a number of prospects andundeveloped discoveries in close proximity to Gabon's Cap Lopez export terminal.A well to appraise the Assala discovery is planned for 2007. Congo (Brazzaville) The four-rig development drilling programme on the M'Boundi field continues,with over 60 wells drilled in the field to date. Average gross field productionexceeded 60,000 bopd at times during the first quarter of 2006 and productionfor the full year is expected to average 55,000 bopd. The development focus hasswitched to water injection to stabilise production and improve oil recovery.Three water injection wells have been drilled and the water injection facilitiesfor the pilot project are expected to be operational in the fourth quarter of2006. Since the beginning of 2006, the crude oil has been blended with thehigher quality N'Kossa blend, reducing the M'Boundi crude discount to Brent toapproximately $1-2/bbl during the period. Equatorial Guinea During the first half of 2006, two infill production wells and two injectionwells were drilled on the Ceiba field and gross field production averaged 36,600bopd with a full year forecast average of 38 to 40,000 bopd. Infill drillingwill continue in order to maintain production levels throughout 2007. The development of the Okume Complex remains on budget and on schedule for firstoil in late December 2006. Two Tension Leg Platforms were installed on thedeepwater fields Okume, Ebano and Oveng in April along with four jackets and twotopsides on the Elon field. The next phase of facilities installation isimminent and will include pipelines, tie backs and the central processingfacilities, while development drilling activity has commenced on the Elon fieldwith a shallow water jack-up rig and on the Okume field with a tender assisteddrilling unit. Initial production from Okume is expected to reach 30,000 bopd inearly 2007 building to a plateau of 60,000 bopd by the end of 2007. Oil will beblended with Ceiba production and exported via the Ceiba FPSO, leading togreater operating and production efficiency. Cote d'Ivoire 2006 has seen record gross production of 39,000 boepd from East Espoir, due to avery positive reservoir response to the pressure support and the infill drillingprogramme initiated during 2005. The first West Espoir production well, WP-1,was brought on stream in late July, however, due to downhole mechanical problemsit is currently flowing at an impaired rate and remedial action will follow. Thesecond West Espoir well, WP-2, has just been completed and is currently flowingat over 5,000 bopd. A further two to three wells, of the anticipated 10 wellprogramme, are scheduled to be drilled during the remainder of the year. Grossforecast production is expected to average 31,000 boepd for the year. Additional potential in the Espoir Area is currently under review. A furtherstep in the appraisal of this potential will involve the WP-3 well which, inaddition to its primary development objective, will test a significantexploration objective below the main West Espoir reservoir known as 'levelzero'. Namibia The Kudu gas-to-power generation project remains the key area of focus forcommercialisation of the giant Kudu gas field offshore Namibia. While technicaland operational progress in recent months has been positive, concluding thechain of commercial agreements from the Gas Sales through to the Power PurchaseAgreements to allow the project to progress to the construction phase isbecoming the most significant challenge to the project schedule. Tullow is committed to proving and commercialising the potentially significantadditional reserves within the greater Kudu area. Integrated geological andseismic studies of the Kudu gas plays have led to a refined subsurface modelthat provides Tullow with a deeper understanding of the upside potential of thearea and has allowed the selection of two appraisal well locations for drillingin 2007. The first well is planned for the Kudu East area, and if successful will open upa multi-tcf play that will be further appraised with the second well. Each wellis expected to take approximately 70 days to drill and the programme isscheduled to commence in March 2007. SOUTH ASIA: Continuing to renew the South Asia Business Tullow's production in South Asia has increased significantly in 2006 with thestart-up of gas production from the Bangora field in Bangladesh. We have madesignificant progress on our Asia exploration portfolio with a number ofimportant regional high impact drilling programmes scheduled to commence in2007. Bangladesh Tullow has been very active on Block 9 in 2006. The appraisal of theBangora-Lalmai discoveries started with a 610 sq km 3D survey over the entirestructure to assist in the selection of appraisal drilling locations. The firstappraisal well (Bangora-2) successfully encountered the predicted extension ofthe reservoir discovered at Bangora-1. The second appraisal well, Bangora-3, wasspudded in July and is currently being logged, having successfully encountered agas bearing reservoir. A production facility has been constructed and Bangora-1was brought on production at rates of up to 50 mmscfd, and is currently stableat 35 mmscfd. Production potential will be significantly enhanced when Bangora-2is tied in during September 2006. Pakistan Good progress has been made on the development of the Chachar gas field. Alldevelopment wells have been drilled and completed and construction of theproduction facilities is in progress. First gas production is expected in thefirst quarter of 2007. Exploration Review Exploration Strategy The current global oil and gas environment creates both challenges andopportunities for an experienced independent operator such as Tullow. Whilecompetition for resources, talent and acreage is intense, application of afocused niche strategy based on key skills, well understood regions and coreplay types has consistently proven effective. Tullow is firmly focused on growth through exploration as a key component of abalanced group strategy and in 2006 will spend £80 million on its worldwideexploration activities. Exploration Programme Tullow has undertaken an active exploration programme in 2006, with 11 wellsdrilled across its core areas. In addition, over 1,800 km of 2D seismic and1,600 sq km of 3D seismic have been acquired and seven new licences have beensecured. Three near infrastructure gas discoveries have been made in the CMSArea in the Southern North Sea and three important high impact oil discoverieshave been made in Uganda. Tullow expects to participate in another four exploration wells in 2006, and afurther six wells in the first half of 2007. Of these, half will be nearinfrastructure wells in the North Sea and Gabon and the other half will bepotentially high impact wells in Africa and India. NW Europe Since acquiring the CMS Area assets in 2001, Tullow has expanded its acreageportfolio and developed its exploration expertise and understanding of thisregion. The success of this strategy has been demonstrated by seven consecutivediscoveries, three in the first half of this year (Humphrey, Cygnus and K4) forwhich potential commerciality and pre-development studies are already inprogress. Two further exploration wells are scheduled for this area during 2007. In addition to its Southern North Sea acreage, Tullow has established a positionin two oil prospects scheduled for drilling later this year. Tullow has agreedto farm into the Peveril prospect in block 39/2c with a 30% interest. This wellis scheduled for November to target an Upper Jurassic Fife Sandstone objective.Tullow has a 6.25% interest in the Acer exploration well in Block 16/18b whichwill spud in October and will target an Upper Jurassic reservoir on trend withthe Miller Field. In Romania, the Costisa-1 well was plugged and abandoned as a dry hole, and theEPI-3 and EPI-8 licences were relinquished. Uganda and Congo (DRC) Since the beginning of the year Tullow has made significant progress in provingup a substantial new hydrocarbon province in the Albertine Basin with three oildiscoveries and two very encouraging sets of well tests in Uganda Block 2. Tullow holds 50% working interests in Uganda Blocks 1, 2 and 3A and has recentlysignificantly enhanced its position in the region by acquiring interests in theDemocratic Republic of Congo (Congo (DRC)) covering the entire western portionof Lake Albert. Block 2 The Mputa-1 well was spudded in late 2005 and encountered oil in sandstonereservoirs of very good quality. The Waraga-1 well was spudded in mid February2006 and discovered oil in sandstone reservoirs of very good porosity. TheMputa-2 well was spudded in early May, down-dip from the Mputa-1 oil discovery,to prove up reserves and establish connectivity in the basin. All three pay zones of the Waraga-1 well performed beyond expectation onproduction test, and yielded a maximum combined flow rate of 12,000 bopd. TheMputa-1 well has also been tested and yielded a combined maximum flow rate of1,100 bopd from two shallower, lower pressure intervals. The forward programme will include a 3D seismic survey in the Kaiso-Tonya area,the region in which the Mputa and Waraga discoveries are located, to identifyoptimal locations for further appraisal and infill drilling. The next well inthe 2006 programme will be the drilling of the Nzizi appraisal well adjacent tothe Mputa discovery in late November. The Joint Venture also plans to continue its extensive exploration programme inother parts of Block 2. In particular, following the recent completion ofaeromagnetic and gravity surveys in the Butiaba area, to the northeast of Waragaand Mputa, a 2D seismic survey is planned in order to identify additional leadsand prospects for future drilling. In addition, we will initiate concept studiesand a selection process to determine the most effective manner in which to drillfast-track onshore wells and offshore prospects by the end of 2007. Following the success of the 2006 programme, opportunities to provide earlyproduction and supply power to Ugandan domestic market are currently underinvestigation. The first steps of any such development could include productionand processing facilities to fuel a local power station and/or a mini-refinery. Block 3A An exploration well to test the large Kingfisher structure was spudded on 15August and is expected to take approximately three months to drill. Thishigh-risk prospect lies largely under Lake Albert, but can be drilled from anonshore location. The subsequent programme for Block 3A will be determined bythe results of Kingfisher, however a number of prospects have been identified. Congo (DRC) In Congo (DRC), Tullow, as operator, has signed a Production Sharing Agreementwith the government to gain a 48.5% operated interest in Blocks I and IIcovering both onshore and offshore acreage, immediately adjacent to Tullow'sUgandan acreage. We expect to commence work on these blocks in 2006 with a number of technicalstudies in preparation for the acquisition of 400 km of 2D seismic data in 2007.This seismic campaign will target potential extensions to the geological playtypes already identified in the region. Madagascar In April, Tullow was awarded Block 3109 in the Morondava Rift Basin ofMadagascar as operator with a 50% interest. The work programme includes a 6,700km reconnaissance aerogravity survey to aid the design of a seismic acquisitionprogramme Gulf of Guinea In Cote d'Ivoire, 750 sq km of 3D seismic data will be acquired over Blocks CI107 and CI 108, commencing in September. The survey will target structuresanalogous to the nearby Baobab and Espoir oil fields, and should suitableprospects be identified, drilling would commence during 2008. In Ghana, Tullow has been awarded two highly prospective offshore licences, withan 85.5% operated interest in the Shallow Water Tano block and a 49.95% operatedinterest in the Deepwater Tano block. The Group has also concluded a farm-inagreement to take a 22.9% interest in the adjacent West Cape Three Pointsoffshore licence. The Deepwater Tano and West Cape Three Points blocks offer significant highimpact exploration potential in both the Albian and Upper Cretaceous geologicalintervals. The Shallow Water Tano block contains three undeveloped oil and gasfields and Tullow's initial aim will be to evaluate the potential tocommercialise these accumulations. In Cameroon, approximately 200 sq km of 3D data have been acquired in the Ngossopermit in the Rio del Rey Basin, targeting prospects in the range of 10 to 20mmbo. Subject to rig availability, up to two exploration wells are proposed for2007. Pre-spud re-evaluation of the Banyan prospect in Equatorial Guinea Block L ledto Tullow successfully diluting for a full carry before the negative result andno further work is planned on this licence. Lower Congo Basin In Angola, Tullow was awarded a 50% operated interest in offshore Block 1/06 inJuly 2006. Proven plays in the block provide exploration upside, and plays ofpossibly higher impact are now under review. The initial focus of work on theBlock will be the potential development of the existing Pitangueira andBananeira discoveries, located close to regional infrastructure. In Gabon, Tullow participated in three offshore exploration wells in the firsthalf of 2006 without commercial success. This led to a thorough review ofexploration opportunities in Gabon, and a renewed effort to acquire interests ina number of plays of potentially significant impact for the Group. Anexploration well is planned for mid 2007 on the Sanidine prospect in theKiarsseny licence, while two wells will be drilled in the Nziembou licence aspart of the wider Niungo programme. South Asia In India, work has commenced on Block CB-ON/1 and a 1,500 km seismic programmeis nearing completion. We anticipate that data processing and interpretationwill be completed in time to commence drilling operations in mid 2007. Thisblock is considered highly prospective given recent large discoveries in thearea. In Bangladesh, Tullow conducted a shallow water seismic survey in offshoreBlocks 17 & 18 in April. A farmout of a 60% working interest has been agreedwith Total and is currently pending approval by the Government of Bangladesh.Joint Venture partners have applied for an extension to allow for theacquisition of a follow-up deeper water seismic survey during the nextacquisition season. In Pakistan, in the Kohat Block, a seismic survey was completed in April.Processing of data is under way and it is anticipated that the first well willbe spudded in the second half of 2007. A well drilled on the Nawabshah block wasdry and Tullow has decided to relinquish the licence. 2006 Second Half Exploration Activity Country Licence Prospect Interest Spud Date Uganda Block 3A Kingfisher 50% Ongoing UK 16/13c Acer 6.25% October 2006 Cote d'Ivoire CI-26 ND-L0 21.33% October 2006 UK 39/2c Peveril 30% November 2006 Uganda Block 2 Nzizi 50% December 2006 Finance Review Tullow had a strong first half of 2006. Trading and production reached new highsand, combined with continuing favourable oil and gas pricing, and a reduction inoil price discount led to record profits and cash flow from operations. Key Performance Indicators The Group's financial performance has enabled strong results across keyperformance indicators. 1H 2006 1H2005 % ChangeProduction (boepd, working interest basis) 62,800 57,350 Up 10%Operating Cash flow before Working Capital per boe (£) 20.79 11.30 Up 84%Cash Operating Costs per boe (£)1 4.85 4.38 Up 11%Gearing (%)2 17% 38% Down 21%Realised Oil Price per bbl ($) 54.42 41.73 Up 30%Realised Gas Price (pence per therm) 53.33 28.82 Up 85% 1Cash operating costs are cost of sales excluding depletion, depreciation andamortisation and under/over lift movements 2Gearing is net debt divided by net assets Operating Performance Working interest production averaged 62,800 boepd, while sales volumes averaged55,400 boepd. These production figures are 10% ahead of the corresponding periodin 2005 and 7% ahead of 2005 full year production rates. Average prices realised during the year were significantly higher than in 2005,particularly on UK gas. The realised oil price was US$54.42/bbl (1H2005:US$41.73/bbl) and the realised UK gas price was 53.33p/therm (1H2005: 28.82p/therm). Tullow's oil production sold at an average discount of 4 to 5% to Brentduring the period and this level of discount is expected to continue for theremainder of 2006. The Group also received tariff income of £8.3 million(1H2005: £6.2 million) from use of its UK infrastructure. The combination of the higher prices and increased volumes meant that revenueincreased 54% to £310.7 million (1H2005: £201.4 million). Revenue analysed by Core Area Oil Gas Total % of Total £ millions £ millions £ millionsNW Europe (UK) - 168.4 168.4 54%Africa 141.3 - 141.3 46%South Asia - 1.0 1.0 -Total 141.3 169.4 310.7% of Total 46% 54% Operating Profit before Exploration Activities amounted to £178.5 million(1H2005: £108.4 million), up 65%, reflecting the growth in Group production andsignificant increase in realised oil and gas prices. Underlying cash operating costs, which exclude depletion, depreciation andamortisation and movements on under/over lift, amounted to £55.1 million (£4.85/boe). Reported Cost of Sales before depletion, depreciation and amortisationfor the period of £59.6 million (1H2005: £65.0 million) include an adjustment of£4.5 million (at market value) associated with overlifted volumes at 30 June2006 and stock movements during the period. Depletion, depreciation and amortisation for the period amounted to £64.3million (£5.66/boe) (1H2005: £5.82/boe). Administrative expenses include an amount of £1.5 million (1H2005: £0.4 million)associated with share based payments under IFRS 2. Exploration Write-off Exploration costs written off were £17.6 million (1H2005: £4.0 million), inaccordance with the Group's "successful efforts" accounting policy, whichrequires that all costs associated with unsuccessful exploration are written offto the Income Statement. This write-off is principally associated withactivities in Gabon, Pakistan and Angola and new ventures during the period. TheGroup drilled 11 wells in the first half of 2006, achieving six discoveries. 10wells are planned in the next 12 months. Hedging reflected in Income Statement (IAS 39) At 30 June 2006 the Group's derivative instruments had a negative mark to marketvalue of £140.8 million, of which a large portion relates to contracts acquiredas part of the acquisition of Energy Africa in 2004. While all of the Group's derivative instruments currently qualify for hedgeaccounting, a charge of £1.7 million (credit of £0.7 million after taxation) hasbeen recognised in the income statement for the first half of 2006. Cumulativehedge ineffectiveness decreased materially during the period, reflecting theimproving correlation of Tullow's hedged production, cash flows and realisationswith the hedge instruments. Hedge Position The Group's hedge position as at 29 August 2006 can be summarised as follows: 2H2006 2007 2008OilVolume - bopd 11,717 9,500 7,500Current Price Hedge - US$/bbl 46.37 55.10 49.93Gas HedgesVolume - mmscfd 69.58 31.25 20.60Current Price Hedge - p/therm 43.99 56.63 49.45 Interest The net interest charge for the period was £6.2 million (1H2005: £7.4 million).The decrease reflects lower debt levels following the Group's $850 millionrefinancing in 2005 combined with repayment of over £50 million of debt duringthe period. Gearing remains modest and the Group has access to substantialunused facilities. Taxation The tax charge of £57.7 million (1H2005: £28.3 million) relates to the Group'sNorth Sea, Equatorial Guinea and Gabonese activities and represents 38% of theGroup's profit before tax (1H2005: 31%). After adjusting for explorationcosts and non-recurring items associated with over lift, the Group's underlyingeffective tax rate for the period is 33% (1H2005: 38%). The underlying effective tax rate for the period has been favourably impacted byamendments to the fiscal regime associated with certain of Tullow's Africaninterests, which have the effect of reducing Tullow's effective tax rate. Thesechanges are also retrospectively effective in respect of 2005 and thus give riseto a partial reversal of prior period tax charges. The underlying effective taxrate has however been adversely affected by the UK Government's decision toraise the supplemental corporation tax rate for the industry to 20% from 10%with effect from 1 January 2006. Progressive Dividend Policy In line with the Group's progressive dividend policy, and reflecting the cashgenerated by the business and the capital investment and acquisitionopportunities available, the Board recommends an interim dividend of 2.0 penceper share (1H2005: 1.0 pence per share). The dividend will be paid on 7 November2006 to shareholders on the register at 29 September 2006. Reinvestment and Capital Management The strong pricing environment, allied to increasing production and effectivecontrol of operating costs, led to record Operating Cash Flows before WorkingCapital Movements of £236.4 million, 103% ahead of 1H2005. This cash flowenabled the Group to invest over £150 million in exploration and developmentactivities, to repay over £50 million of bank loans and to double our dividendin respect of the period. The majority of Group capital expenditure continues to be associated withongoing development and production enhancement projects in the UK, Gabon, Congo(Brazzaville), Equatorial Guinea and Cote d'Ivoire. Investment obligations inrespect of these assets will be significantly reduced in 2007 as they will allbe contributing to cashflows, however, the Group is actively pursuing newdevelopment opportunities, particularly in West Africa. While activity levelsremain high, the cost environment, and the rig market in particular, remainchallenging and the cost and timing of capital programmes, most notably inrespect of offshore assets, are being adversely affected by market conditions. Tullow currently anticipates a total 2006 capital expenditure of £330 millionacross all assets, driving group production to a target of over 75,000 boepd byyear end. Balance Sheet Net assets at 30 June 2006 amounted to £440.8 million (31 December 2005: £389.0million), the increase principally reflecting retained profits for the period of£95.4 million. Net assets were reduced by £2.0 million in the period due to themovement of the hedge reserve in accordance with IAS 39. A decrease in netassets (foreign currency translation reserve) of £25.5 million resulted from thestrengthening of Sterling against the US Dollar from US$1.72 to US$1.82 in theperiod. 2006 Outlook Today's record results demonstrate the quality of Tullow's portfolio andcontinued growth of its business. While competition for resources, talent andquality acreage is intense, our strategy, based on key skills and wellunderstood regions, has proven effective. In the short term, we remain on trackto achieve our production target of 75,000 boepd by the end of the year, whilerecent exploration results in Uganda and the programmes planned in India andNamibia provide outstanding opportunities for growth. The outlook for Tullowremains very positive. Ends For further information contact Tullow Oil plc Citigate Dewe Rogerson Murray Consultants + 44 20 8996 1000 +44 20 7638 9571 +353 1 498 0300Aidan Heavey, CEO Martin Jackson Joe MurrayTom Hickey, CFOChris Perry, IRO Disclaimer This statement contains certain forward-looking statements that are subject tothe usual risk factors and uncertainties associated with the oil and gasexploration and production business. Whilst the Group believes the expectationsreflected herein to be reasonable in light of the information available to themat this time, the actual outcome may be materially different owing to factorsbeyond the Group's control or within the Group's control where, for example, theGroup decides on a change of plan or strategy. Accordingly no reliance may beplaced on the figures contained in such forward-looking statements. Independent Review Report To the Shareholders of Tullow Oil plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 which comprise the Group income statement,Group statement of recognised income and expense, Group balance sheet, Groupcash flow statement and related notes 1 to 5. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Deloitte & Touche LLP Chartered Accountants London 5 September 2006 Group Income Statement Six months ended 30 June 2006 6 months 6 months Year ended ended ended 30.06.06 30.06.05 31.12.05 Unaudited Unaudited Audited £'000 £'000 £'000 Sales Revenue 310,720 201,434 445,232Cost of Sales (123,880) (125,425) (243,149)Gross Profit 186,840 76,009 202,083Administrative Expenses (8,331) (7,176) (13,793)Disposal of Subsidiaries - 33,918 30,537Profit on Sale of Oil and Gas Assets - 5,653 5,524Exploration Costs Written Off (17,551) (4,019) (25,783)Operating Profit 160,958 104,385 198,568Loss on Hedging Instruments (1,678) (5,592) (159)Finance Revenue 3,228 2,046 4,367Finance Costs (9,397) (9,462) (24,197)Profit from Continuing Activities before Tax 153,111 91,377 178,579Income Tax Expense (57,667) (28,291) (65,443)Profit for the Period from Continuing Activities 95,444 63,086 113,136Earnings per Ordinary Share Stg p Stg p Stg p- Basic 14.72 9.82 17.50- Diluted 14.42 9.69 17.15 Group Statement of Recognised Income and Expense Six Months ended 30 June 2006 6 months 6 months Year ended ended ended 30.06.06 30.06.05 31.12.05 Unaudited Unaudited Audited £'000 £'000 £'000Profit for the Financial Period 95,444 63,086 113,136Currency Translation Adjustments (29,876) 17,314 32,447Hedge Movement (2,048) (81,246) (120,449)Total Recognised Income and Expense for the Period 63,520 (846) 25,134 Group Balance Sheet As at 30 June 2006 30.06.06 30.06.05 31.12.05 Unaudited Unaudited Audited £'000 £'000 £'000ASSETSNon-Current AssetsIntangible Exploration and Evaluation Assets 186,945 136,806 160,543Property, Plant and Equipment 768,600 693,749 736,563Investments 496 496 496Total Non-Current Assets 956,041 831,051 897,602Current AssetsInventories 12,473 2,445 5,141Trade Receivables 51,667 39,145 66,441Other Current Assets 21,777 24,072 26,851Assets Held for Resale - 42,804 -Cash and Cash Equivalents 67,808 122,913 65,386Total Current Assets 153,725 231,379 163,819Total Assets 1,109,766 1,062,430 1,061,421LIABILITIESCurrent LiabilitiesTrade and Other Payables (147,104) (90,883) (139,415)Other Financial Liabilities (2,447) (23,140) -Income Tax Payable (28,292) (23,183) (25,038)Liabilities Held for Resale - (6,476) -Derivative Financial Instruments (59,593) (56,733) (70,639)Total Current Liabilities (237,436) (200,415) (235,092)Non-Current LiabilitiesTrade and Other Payables (11,576) (23,245) (19,118)Other Financial Liabilities (138,476) (298,587) (198,372)Deferred Tax Liabilities (97,951) (27,236) (51,473)Provisions (102,344) (82,450) (91,139)Derivative Financial Instruments (81,220) (83,915) (77,208)Total Non-Current Liabilities (431,567) (515,433) (437,310)Total Liabilities (669,003) (715,848) (672,402)Net Assets 440,763 346,582 389,019EQUITYEquity attributable to Equity Holders of the ParentCalled up Share Capital 64,989 64,654 64,744Share Premium 124,547 122,385 123,019Other Reserves 33,083 55,774 60,589Retained Earnings 218,144 103,769 140,667Total Equity 440,763 346,582 389,019 Group Cash Flow StatementSix Months ended 30 June 2006 Note 6 months 6 months Year ended ended ended 30.06.06 30.06.05 31.12.05 Unaudited Unaudited Audited £'000 £'000 £'000 Cash Flows from Operating ActivitiesCash Generated from Operations 5 257,648 114,698 273,840Income Taxes Paid (23,185) (25,381) (25,360)Net Cash from Operating Activities 234,463 89,317 248,480Cash Flows from Investing ActivitiesDisposal of Subsidiary - 58,487 57,227Disposal of Oil and Gas Assets 727 - 31,769Purchase of Intangible Exploration & Evaluation (40,734) (14,356) (69,766)AssetsPurchase of Property, Plant and Equipment (111,651) (253,061) (298,320)Interest Received 3,229 2,081 4,359Net Cash used in Investing Activities (148,429) (206,849) (274,731)Cash Flows from Financing ActivitiesNet Proceeds from Issue of Share Capital 1,772 847 1,570Debt Arrangement Fees (1,734) (2,095) (10,481)Repayment of Bank Loans (56,844) (26,750) (351,637)Drawdown of Bank Loan 5,506 191,476 390,515Interest Paid (9,526) (8,649) (21,483)Dividends Paid (19,505) - (14,555)Net Cash Used in Financing Activities (80,331) 154,829 (6,071)Net Increase/(Decrease) in Cash and Cash Equivalents 5,703 37,297 (32,322)Cash and Cash Equivalents at Beginning of Period 65,386 85,070 85,070Translation Difference (3,281) 546 12,638Cash and Cash Equivalents at end of Period 67,808 122,913 65,386 Notes to the Interim Financial Statements Six Months ended 30 June 2006 1. Basis of Accounting and Presentation of Financial Information These June 2006 interim consolidated financial statements are for the six monthsended 30 June 2006. The interim financial report has been prepared usingaccounting policies consistent with International Financial Reporting Standards(IFRS) and the accounting policies and methods of computation used in theinterim financial statements are consistent with those used in the Group 2005annual report. The financial information for the year ended 31 December 2005 does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. A copy of the statutory accounts for that year has been delivered to theRegistrar of Companies. The auditors' report on those accounts was not qualifiedand did not contain statements under section 237(2) or (3) of the Companies Act1985. 2. Earnings per Share The calculation of basic earnings per share is based on the profit for theperiod after taxation of £95,444,025 (1H2005 - £63,086,455) and a weightedaverage number of shares in issue of 648,423,888 (1H2005 - 642,685,021). The calculation of diluted earnings per share is based on the profit for theperiod after taxation as for basic earnings per share. The number of sharesoutstanding, however, is adjusted to show the potential dilution if employeeshare options are converted into ordinary shares. The weighted average number ofordinary shares is increased by 13,525,872 (1H2005: 8,550,377) in respect ofemployee share options, resulting in a diluted weighted average number of sharesof 661,949,760 (1H2005: 651,235,398). 3. Dividends The Company's shareholders approved a final dividend for the year ended 31December 2005 of 3.0p per share at the Annual General Meeting on 31 May 2006.This amount was paid on 7 June 2006 to shareholders on the register of membersof the Company on 12 May 2006. The Board has recommended an interim 2006 dividend of 2.0p per share in the halfyear to 30 June 2006 to be paid on 7 November 2006 to shareholders on theregister on 29 September 2006 (1H2005: 1.0p per share) 4. Approval of Accounts These interim accounts (Unaudited) were approved by the Board of Directors on 5September 2006. 5. Cash Flows from Operating Activities 6 months 6 months Year ended ended ended 30.06.06 30.06.05 31.12.05 Unaudited Unaudited Audited £'000 £'000 £'000 Profit before taxation 153,111 91,377 178,579Adjustments for:Depletion, Depreciation and Amortisation 64,254 60,811 119,697Foreign Exchange Loss/(Profit) 1,446 (242) 72Exploration Costs 17,551 4,019 25,783Disposal of Subsidiaries - (33,918) (30,537)Profit on Disposal of Oil and Gas Assets - (5,653) (5,524)Operating Cash Flow before Working Capital Movements 236,362 116,394 288,070Increase/(Decrease) in Trade and Other Receivables 22,589 (32,798) (38,538)(Increase)/Decrease in Inventories (7,332) 947 (1,749)(Decrease)/Increase in Trade Payables (3,355) 16,777 4,665Share Based Payment Charge 1,537 370 1,403Hedge Ineffectiveness 1,678 5,592 159Interest Receivable (3,228) (2,046) (4,367)Finance Costs Payable 9,397 9,462 24,197Cash Generated from Operations 257,648 114,698 273,840 6. Proven and Probable Reserves Summary (Working Interest Basis) (Not reviewed by Auditors) NW EUROPE AFRICA SOUTH ASIA TOTAL Oil Gas Oil Gas Oil Gas Oil Gas Petroleum mmbbl bcf mmbbl bcf mmbbl bcf mmbbl bcf mmboeCommercial1 Jan 2006 - 356.18 112.96 23.80 - 95.26 112.96 475.24 192.15Revisions - 35.90 (0.01) 0.53 - 1.06 (0.01) 37.49 6.25Acquisitions - 4.17 - - - - - 4.17 0.70Production - (29.48) (6.06) (0.31) - (1.12) (6.06) (30.91) (11.22)30 June 2006 - 366.77 106.89 24.02 - 95.20 106.89 485.99 187.88Contingent1 Jan 2006 - 191.40 0.70 781.20 - 16.20 0.70 988.80 165.50Revisions - (14.65) 2.70 1.00 - - 2.70 (13.65) 0.4330 June 2006 - 176.75 3.40 782.20 - 16.20 3.40 975.15 165.93Total30 June 2006 - 543.52 110.29 806.22 - 111.40 110.29 1,461.14 353.81 Proven and Probable Commercial Reserves are based on a Group reserves reportproduced by an independent engineer. Proven and Probable Contingent Reservesare based on both Tullow's estimates and the Group reserves report produced byan independent engineer. The Group provides for depletion, depreciation and amortisation of tangiblefixed assets on a net entitlements basis, which reflects the terms of theProduction Sharing Contracts related to each field. Total net entitlementreserves were 159.1 mmboe at 30 June 2006 (31 December 2005: 162.2 mmboe),calculated at $40/bbl (2005: $40/bbl). Contingent Reserves relate to reserves inrespect of which development plans are in the course of preparation or furtherevaluation is under way with a view to development within the foreseeablefuture. About Tullow Oil plcTullow Oil plc is a leading independent oil and gas, exploration and productiongroup and is quoted on the London and Irish Stock Exchanges (symbol: TLW.L). TheGroup has interests in over 90 production and exploration licences in 17countries and focuses on three core areas: North West Europe, Africa and SouthAsia. For further information please consult the Group's websitewww.tullowoil.com. Events on Results Day In conjunction with these results Tullow is conducting a London Presentation anda number of events for the financial community. All times are BST. 09.00 UK/European Conference Call (and simultaneous Webcast) To access the call please dial the appropriate number below shortly before thecall and ask for the Tullow Oil plc conference call. A replay facility will beavailable from approximately noon on 6 September until 13 September. Thetelephone numbers and access codes are: Live Event Replay Facility available from NoonUK Participants 020 7138 0827 UK Participants 020 7806 1970Irish Participants 01 655 0485 Irish Participants 01 659 8321Other Participants +44 20 7138 0827 Other Participants +44 20 7806 1970 Access Code 8251545# To join into the live webcast, or play the on-demand version, you will need tohave either Real Player or Windows Media Player installed on your computer. 15.00 US Conference Call To access the call please dial the appropriate number below shortly before thecall and ask for the Tullow Oil plc conference call. A replay facility will beavailable from approximately 18.00 on 6 September until 13 September. Thetelephone numbers and access codes are: Live Event Replay Facility available from 18.00Domestic Toll Free 480 629 9562 Domestic Toll Free 303 590 3030Toll 020 7190 1596 Toll 020 8515 2499 Access Code 3593556 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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