13th Jul 2005 07:01
Tullow Oil PLC13 July 2005 Tullow Oil plc Trading Statement and Operational Update 13 July 2005 - Tullow Oil plc (Tullow) issues this combined Trading Statement inrespect of the first half of the 2005 financial year and Operational Update inrespect of Production, Development and Exploration activities during the periodbeginning April and ending July 2005. Tullow is a leading independent oil andgas, exploration and production group, quoted on the London and Irish StockExchanges (symbol: TLW) and is a constituent of the FTSE 250 Index. The Grouphas interests in over 90 production and exploration licences in 16 countries andfocuses on three core areas: NW Europe, West Africa and South Asia. The Trading Statement is in advance of the Group's Interim Results, which arescheduled for release on 14 September 2005. The information contained hereinhas not been audited and is subject to further review. HIGHLIGHTS Operational Overview • Trading during the first half was at record levels, with a strong production performance combining with continuing favourable oil and gas pricing. Production and Reserve Enhancement • In the first half of 2005, average Group working interest production increased to 57,350 boepd, more than double that of the same period in 2004 and 41% ahead of the average for 2004. • Approximately 30 successful development and appraisal wells were drilled in the first half. Production levels continue to increase and are anticipated to average 60,000 boepd for the second half. • Following the commencement of production from the Horne & Wren project on 9 June 2005, UK gas production is at an all time high of over 150 mmscfd. Exploration • Gas discovery with the Opal well in the Southern North Sea close to Tullow-owned infrastructure; two further UK wells confirmed for second half. • Tullow-operated three well exploration programme in Gabon to commence in November. • A minimum of eight exploration wells are confirmed in the drilling schedule for the second half of 2005 in all three core areas. Acquisitions and Portfolio Management • The £200 million acquisition of the Schooner and Ketch producing assets completed on 31 March 2005, within three months of the deal being agreed. • Sale of Alba/Caledonia ($112 million/£59 million) completed in June and completion of offshore Congo ($72 million/£38 million) disposal imminent. Commenting today, Aidan Heavey, Chief Executive of Tullow said: "The first half of 2005 continues to show the benefits of the acquisition anddevelopment work undertaken over the last 12 months. Recent investments, suchas Schooner and Ketch, are already contributing to performance, explorationactivity is increasing and the outlook for the remainder of the year is veryencouraging." CONFERENCE CALL There will be a conference call at 09:30 (BST) today, hosted by Aidan Heavey,Chief Executive, Paul Mc Dade, Chief Operating Officer and Tom Hickey, ChiefFinancial Officer of Tullow Oil plc: For UK and international participants please call +44 (0)20 7365 1829 andrequest to be connected to the Tullow Oil teleconference. For participants inIreland, please call 01 659 2811. A replay facility will be available from one hour after the conference calluntil 18:00 (BST) on Tuesday 19 July. Please call +44 (0)20 7784 1024, accesscode: 5824709#. For further information contact: Tullow Oil plc Citigate Dewe Rogerson Murray Consultants(+44 20 7333 6800) (+44 207 638 9571) (+353 1 498 0300)Aidan Heavey Martin Jackson Joe MurrayTom HickeyPaul Mc Dade Trading Statement This trading statement is provided for the six months ended 30 June 2005 inadvance of the Group's 2005 Interim Results, which are scheduled for release on14 September 2005. The information contained herein has not been audited and issubject to further review. Overview Trading during the first half has been at record levels, with strong productionperformance combining with historically high levels of oil and gas pricing.During the period, Tullow has successfully completed its first operated UK Gasdevelopment and participated in approximately 30 successful development wells,resulting in a steady increase in production in the UK and Africa. In addition,the Group has announced the completion of the highly significant Schooner andKetch acquisition, thereby increasing exposure to the UK gas market at a timewhen the forward curve is at an all time high. On the exploration front, whilethere has been limited first half activity and general pressure on bothequipment and rig costs, an active programme is planned for the second half,including material prospects in Mauritania and Uganda. Production Group working interest production for the first half of 2005 averaged 57,350boepd, more than double the comparable period in 2004 and some 41% ahead of theaverage for 2004. Second half production is expected to average approximately60,000 boepd, after completion of all disposals. The production figures includefive months production from Alba and Caledonia prior to completion of theirdisposal on 8 June 2005 and three months of production from Schooner and Ketchfollowing completion of the acquisition on 31 March 2005. A further breakdown ofthese figures is provided in the Operational Update under each core area.Production figures remain subject to final reconciliation and do not equate tosales volumes. This is due to variations in lifting schedules and because aportion of the production is delivered to host governments under terms ofProduction Sharing Contracts. Overlift position At 30 June 2005, Tullow was in a net overlift position amounting to an estimated310,000 barrels. This principally comprised overlifted volumes in respect ofN'Kossa and Ceiba in the Republic of Congo, the Tchatamba field in Gabon and theEspoir field in Cote D'Ivoire. These positions arise due to the election ofcertain field partners to take their lifting entitlement in the form of singlededicated cargoes, thereby causing temporary lifting imbalances between partnersduring the year. Such overlift positions are valued at market value for therelevant crude and accordingly a charge of approximately £14 million will bemade to cost of sales in respect of the overlifted position at 30 June; thischarge is expected to reverse in full during the second half of 2005. Treatment of under and overlift is identical under both UK GAAP and IFRS. Exploration Write-Off Tullow's accounting policy under UK GAAP is to write-off in full to the profitand loss account all costs relating to pre-license costs and unsuccessfulexploration activities. The transition to IFRS will have no impact on thistreatment. Based on current estimates, Tullow's exploration write-off for thefirst half of 2005 is expected to be of the order of £4 million subject to anyadditional drilling activities. Portfolio Management On 8 June 2005 Tullow completed the sale of two subsidiaries holding minorityinterests in the Alba and Caledonia oil fields in the Central North Sea toItochu Corporation for a headline consideration of $112 million (£59 million). Aprofit of the order of £25 million will be realised on the sale. The sale of Tullow's offshore Congo assets for a headline consideration of $72million (£38 million) is awaiting government approval. Capital Expenditure During 2005 Tullow has planned capital investment in the order of £150 million,of which approximately 70% will be spent on development activities in the UK,Gabon, Congo, Cote d'Ivoire and Equatorial Guinea, with the balance focused onexploration activities. Net Debt and Refinancing Initiatives Net Debt at 30 June 2005 was £207.5 million inclusive of all cash balances; thisexcludes funds receivable in respect of the disposal of Offshore Congo Assets,which remains subject to Government approval. In the first half of 2005 the Group has also made substantial progress in therefinancing of existing debt facilities. This refinancing will provide up to$850 million of debt capacity giving greater flexibility in the funding of ourongoing development programmes. We expect this facility to be executed in July. International Financial Reporting Standards (IFRS) The Group will adopt IFRS with effect from 1 January 2005 and the 2005 interimfigures will be prepared on the new basis. In advance of the interim results,Tullow plans to issue an IFRS restatement of the 31 December 2004 and 30 June2004 consolidated financial information (profit and loss account, balance sheetand cashflow statement) and 1 January 2004 balance sheet during August 2005. Hedging Summary Tullow's policy is to mitigate the Group's exposure to oil and gas price riskfor a portion of its production using a range of financial instruments. Themain objectives of the hedging programme are to reduce exposure to pricevolatility and particularly downside risk, and to provide substantial assuranceof appropriate levels of liquidity for the Group's various investmentopportunities. At 8 July 2005 the Group's hedge position to the end of 2006 isas follows: Oil Hedges H2 05 H1 06 H2 06 Volume - bopd 9,946 7,744 7,718 Average Price* - $/bbl 36.1 32.9 32.9 Gas Hedges H2 05 H1 06 H2 06 Volume - mmscfd 57 52 33 Average Price* - p/therm 32.6 52.1 36.6 * Average hedge prices are based on market prices as at 8 July 2005 and representthe current value of hedged volumes Operational Update This Operational Update summarises key activities in Production (P), Development(D), Exploration (E) and Appraisal (A) assets of Tullow Oil plc for the periodbeginning April 2005 and ending July 2005. NW EUROPE CORE AREA UK In the UK North Sea, Tullow's principal interests are in the Caister-MurdochSystem (CMS), the Thames/Hewett group of licences and the Bacton onshoregas-processing terminal on the Norfolk coast, which the Group operates. Current working interest production 1H 2005 Average (boepd) June 05 Average (boepd)UK Southern North Sea (1) 18,700 24,900UK Oil 4,350 Assets SoldUK Total 23,050 24,900 (1) Includes all condensate and Gas sales Schooner (D/P)(Tullow 90.35%) and Ketch (D/P) (Tullow 100%) The £200 million acquisition from Shell and ExxonMobil was completed on 31March. The facilities maintenance campaign was implemented immediately and hasalready improved the uptime of the assets to over 95% and increased averageproduction for the first three months of Tullow's operatorship to over 50mmscfd. The Ensco 101 drilling rig is scheduled to arrive in early Q4 2005 to commence aprogramme of three new wells and nine work-overs with the aim of increasingfield production above 140 mmscfd during 2006. Technical subsurface modellingwork is on schedule to support a potential extension of the rig campaign into2007. In addition, the NW Schooner Extension Appraisal area has been evaluatedand is likely to be drilled during 2006 and technical studies are progressing tofully evaluate the exploration potential of the SE Schooner extension. Horne and Wren (P) (Tullow 50%) Natural gas production from Horne & Wren, Tullow's first operated development inthe UK, commenced on 9 June 2005 and is producing at the predicted gross plateaurate of 90 mmscfd through the Tullow-owned Thames and Hewett infrastructure. Munro (D) (Tullow 15%) Following development sanction in November 2004, the Munro field platform andpipeline construction is complete and the development well is currentlyunderway. First gas from the project is expected in September 2005. McAdam (P/D) (Tullow 14%) An infill well opportunity has been identified to add incremental reserves andaccelerate production from the McAdam field, one of five fields which togethercomprise the CMS III unitised development. The well was spudded on the 2 Julyand is expected to be tied into production in November 2005 adding incrementalgross production of approximately 40 mmscfd. Alba (P/D) (Tullow 8%) The sale of two Tullow subsidiaries holding minority interests in the Alba andCaledonia oil fields in the Central North Sea to Itochu Corporation completed on8 June 2005. The headline consideration was $112 million (£59 million) with aneffective date of 1 January 2005. Opal (formerly West Boulton) (E) (Tullow 46%) The Opal exploration well (43/25a-2W) successfully encountered gas-bearingreservoir sands in the targeted Carboniferous interval. Information obtainedfrom the discovery well is being integrated with existing data to evaluate theextent of the accumulation and to complete pre-development studies. The tie-backoptions for the discovery include the nearby Tullow-owned CMS infrastructure.Tullow's interest in this discovery has now been confirmed at 46% . Oval Prospect (54/1a) (E) (Tullow 45%) Tullow's first UK offshore operated exploration well on the Oval prospect isscheduled to commence drilling mid-July with an anticipated duration ofapproximately 50 days. Romania Costisa-1 (EPI-3) (E) (Tullow 42.06%) The Costisa -1 exploration well in Block EPI-3 Brates, is progressing and iscurrently at 3,050m. The well is expected to reach the total depth of 4,100m inSeptember 2005. AFRICA CORE AREA In Africa, Tullow has production and development interests in Gabon, Coted'Ivoire, Congo (Brazzaville), Equatorial Guinea and Namibia. Tullow also hasexploration interests in Morocco, Mauritania, Senegal, Cameroon, Uganda andEgypt. Current working interest production 1H 2005 Average (boepd) June 05 Average (boepd)Congo 6,250 6,950Cote d'Ivoire 3,050 3,850Equatorial Guinea 6,100 7,000Gabon 18,400 17,900West Africa Total 33,800 35,700 Republic of Congo M'Boundi Field (P/D) (Tullow 11%) The development drilling programme is continuing on the M'Boundi field with 13development wells drilled since January, of which 10 have been successful. Thesewells have extended the field limits and, in the north-east, intersected higherproductivity reservoir. Average gross field production has increased from 35,000bopd in January to the current rate of 44,000 bopd, with 29 producing wellscurrently on line. Three rigs are currently active on the field with a fourthrig planned to commence drilling in August. The central processing facilityupgrade to 60,000 bopd has been completed and is operational. A further upgradeto 90,000 bopd and a water injection pilot project, as a precursor to full fieldinjection, are also planned. A further 12 development wells and two water injection wells are planned for thesecond half of 2005. N'Kossa (P/D) (Tullow 4%) Tullow announced the sale of its stake in the N'Kossa field in April 2005 for aconsideration of $72 million (£38 million). The transaction remains subject toGovernment approval and is expected to complete in August 2005 with an effectivedate of 1 January 2005. Average gross production for the first half of 2005 wasapproximately 50,000 bopd. Equatorial Guinea Ceiba Field (P/D) (Tullow 14.25%) Two infill production wells C-25 and C-26 and a work-over on C-22 were allsuccessfully completed and brought on stream in the first half of the year.Additionally the C27i water injector was successfully drilled to the reservoirlevel and is currently being completed. A further two injectors are planned andthe commencement of another production well is likely during the remainder of2005. This programme has resulted in steady increases in gross field productionfrom approximately 38,000 bopd in January to around 50,000 bopd at present, withthe second quarter of 2005 averaging 46,500 bopd, the highest quarterlyperformance since late 2002. The infill drilling programme is expected tocontinue through 2006. Okume Complex Development (D) (Tullow 14.25%) The Okume Complex comprises the Okume, Oveng, Ebano and Elon fields and wasformerly known as Northern Block G. Two Tension Leg Platforms (TLPs), beingconstructed in Korea, will be installed on the deepwater fields Okume, Ebano andOveng. The Central Processing facility and other shallow water facilities forthe Elon field are being constructed in the US Gulf Coast. The TLPs and theshallow water jacket will be installed in the second quarter of 2006 withdrilling expected to commence mid 2006. The development remains on budget andon schedule for first oil by year end 2006. Cote d'Ivoire East Espoir Field (P/D) (Tullow 21.3%) Current East Espoir Production is approximately 18,000 boepd gross. The first offour new infill production wells, EP-7, was completed during the second quarterof the year and is currently on production. The second infill well is inprogress. two further wells are planned with the intention of increasingproduction from East Espoir to over 25,000 boepd by year end. West Espoir Development (D) (Tullow 21.3%) Progress on the West Espoir development project is well advanced. The jacket andwell head tower are being constructed in Sardinia and the Espoir FPSO upgrade isnearing completion offshore. The project is on target for the installation ofthe jacket, well head tower and pipeline hook-up in the Q4 2005. First oilremains scheduled for the second quarter of 2006. Gabon Tullow's net production from Gabon has averaged over 18,500 bopd for the year todate and is forecast to remain at this level through to the end of the year. Niungo (P/D) (Tullow 40%) Five appraisal/development wells (Niu 20 to 24) were drilled between January andApril 2005 and are gradually being brought on stream, increasing average grossproduction to over 14,000 bopd in June. As a result of this successful drillingprogramme, up to three additional step-out appraisal wells have been approved toprobe the northern extent of the field. The first of these, Niu-25, wasunsuccessful and will be used as a water disposal well. The second well, Niu-26,was successful, reaching total depth on the 1 July. Tchatamba (P/D) (Tullow 25%) Gross production for the year to date has averaged approximately 36,000 bopd.In May, a production well was recompleted over a 'sweet' reservoir section tomaintain the quality of the Tchatamba oil exports, which obtain a premium pricein the market. A project to upgrade the produced water handling facilities atTchatamba has also been completed which will prevent water production fromlimiting oil production for the life of the production licence. Etame (P/D) (Tullow 7.5%) A development well (ET-6H) is currently being drilled on the Etame field. Thisis expected to significantly increase gross production which is currentlyaveraging over 18,000 bopd. In the same license area, Government approval wasobtained in February for the development of the Avouma/North Tchibali discoveryand development planning is well advanced with a view to first oil in secondquarter of 2006. Tullow is entitled to a carried interest of 7.5% through to thecommencement of production from this development. Akoum (E) (Tullow 100%) and Kiarsseny (E) (Tullow 47.5%) A rig has been contracted to drill up to three exploration wells on the Tullowoperated Akoum and Kiarsseny licences, with drilling expected to commence inmid-November. These wells are targeting prospects in the vicinity of existinginfrastructure with a view to fast-track development in the case of success. Namibia Kudu (D) (Tullow 90%) Considerable progress has been made on the first phase gas-to-power developmentproject with the award of the Front End Engineering Design (FEED) contract tothe Wood Group (Woodhill Frontier/JP Kenny) in March 2005. The FEED study isscheduled to complete at the end of July 2005 and once the various gas and powerofftake arrangements and related financing have been agreed, an investmentdecision is expected in early 2006. Appraisal of the field's considerablereserves upside is in progress with drilling planned for 2006. Tullow alsoplans to consider the introduction of an additional partner into the project inadvance of any final investment decision. SOUTH ASIA CORE AREA In South Asia, Tullow has production and exploration interests in Pakistan andexploration and appraisal activities in India and Bangladesh. Current working interest production 1H 2005 Average (boepd) June 05 Average (boepd)Pakistan 490 450South Asia Total 490 450 Bangladesh Block 9, Bangora-1 (A) (Tullow 30%) An appraisal programme for the Bangora/Lalmai discoveries was submitted andapproved by the Government of Bangladesh in April 2005. Work on the programme,which includes a Long Term Test of the Bangora-1 well and further seismic anddrilling, has commenced. First production from the Bangora-1 well is expected inthe first quarter of 2006 at a gross rate of approximately 50 mmscfd.Acquisition of further 2D & 3D seismic is planned for Q4 2005 with appraisaldrilling commencing in Q1 2006. Pakistan Chachar (D) (Tullow 75%) Following approval from Government of Pakistan for the development of theChachar Field, a FEED study has been initiated and development planning ison-going, with first gas scheduled for Q2 2006. New licence awards (E) (Tullow 40%) In the last quarter, Tullow has signed four new exploration licences in Pakistan - Kohat, Bannu West, Kalchas and Kohlu. Each of these licences has potentialprospectivity for both oil and gas and Tullow plan to commence exploration workas soon as practicable. India Block CB-ON-1 (E) (Tullow 50%) In April, Tullow received Government of India approval to acquire a 50% interestin Block CB-ON-1 (Cambay Basin). Seismic reprocessing work is ongoing and itis planned to acquire new seismic data late in 2005. EXPLORATION To date in 2005, Tullow has participated in three exploration wells; the Ovalgas discovery in the UK, the unsuccessful Avouma-2 well in Gabon and the Costisawell in Romania that is currently drilling. Tullow has a further eight firmwells planned in the second half of 2005 that are summarised in the table below,with material prospects being drilled in Mauritania (Block 1 - Faucon) andUganda (Block 2 - Mputa). The programmes in Gabon will also extend into 2006,while a number of contingent wells, also planned, are subject to partnerapproval. In common with other industry participants, Tullow is currentlyexperiencing significant delays and cost pressures in securing rigs and relatedequipment for drilling over the coming 12 months. This has resulted in thedeferral of certain activities into 2006, however the bulk of equipment andapprovals have been secured for the programme set out below. In addition to ongoing drilling programmes, the Group is also pursuing newexploration ventures in each of its three core areas. Summary of Planned Second Half 2005 Exploration ActivityCountry Licence Prospect Interest Spud DateRomania EPI-3 Costisa-1 42.1% (op) In progressUK 54/1a-E Oval 45.0% (op) July 2005UK 44/23b-K K3 22.5% August 2005Mauritania Block 1 Faucon 1 20.0% September 2005Pakistan Nawabshah Hakim Daho West 30.0% (op) September 2005Uganda Block 2 Mputa-1 50.0% October 2005Gabon Kiarsseny KME-1A, Equata 47.5% (op) November 2005Gabon Akoum West AKMC-1 100.0% (op) December 2005 ENDS Disclaimer This announcement contains certain operational and financial information inrelation to 2004, which is subject to final review and has not been audited.Furthermore it contains certain forward-looking statements that are subject tothe usual risk factors and uncertainties associated with the oil & gasexploration and production business. Whilst the Group believes the expectationsreflected herein to be reasonable, the actual outcome may be materiallydifferent owing to factors either within or beyond the Group's control, andaccordingly no reliance may be placed on the figures contained in such forwardlooking statements. For further information please refer to our website at www.tullowoil.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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