31st Jan 2007 07:02
Tullow Oil PLC31 January 2007 Tullow Oil plc Trading Statement and Operational Update 31 January 2007 - Tullow Oil plc ("Tullow") issues this Trading Statement inrespect of its financial year to 31 December 2006 and this Operational Update inrespect of recent Production, Development and Exploration activities. The Trading Statement is in advance of the Group's Full Year Results, which arescheduled for release on Wednesday, 21 March 2007. The information containedherein has not been audited and is subject to further review. HIGHLIGHTS Production and Development • Working interest production averaged 64,720 boepd for 2006, 11%higher than 2005, and reached 75,000 boepd by year end; • Significant production and development activity is planned for eachof our core areas in 2007. Key development projects include Schooner and Ketch(UK), Okume (Equatorial Guinea), Chinguetti (Mauritania), West Espoir (Coted'Ivoire), M'Boundi (Congo Brazzaville) and Bangora (Bangladesh); • Working interest production is expected to average in excess of80,000 boepd in 2007. Exploration and New Ventures • In 2006 the Group drilled 12 exploration wells, seven of whichdiscovered hydrocarbons; • Five oil discoveries in the Albertine Basin in Uganda havesignificantly enhanced the prospectivity of the region. An accelerated programmeof exploration and appraisal activity across the Group's acreage in Uganda isscheduled for 2007; • An active new ventures programme resulted in seven new explorationlicences in 2006. Further awards are expected in Africa during 2007; • Drilling plans for 2007 include over 20 exploration wells, with highimpact programmes focused on three key campaigns in Uganda, Namibia and India. Acquisitions • On 25 September 2006 Tullow announced a proposal to acquire HardmanResources Limited ("Hardman") for US$1.1 billion. Following regulatory andshareholder approval, the transaction became effective on 20 December 2006; • The acquisition materially enhances Tullow's portfolio by adding bothexploration and production assets in Mauritania, establishing operationalcontrol in Uganda's Albertine Basin, and significantly extending Tullow'sprospective acreage position in Africa and South America. Commenting today, Aidan Heavey, Chief Executive of Tullow said: "During 2006, we consistently demonstrated our ability to deliver focused growthfrom our portfolio with seven successful exploration wells, seven newexploration licences, a major acquisition and a significant increase in annualproduction. The integration of the Hardman assets is progressing well and 2007is expected to be a year of further progress, with strong production performanceand three major drilling campaigns in Uganda, India and Namibia. We arecontinuing to build a substantial international oil and gas business." Conference CallsIn conjunction with this announcement Tullow has scheduled two conference calls.Details are included at the end of the release. Trading Statement Production Group working interest production for 2006 averaged 64,720 boepd, 11% higherthan the 2005 average. Sales volumes for 2006 averaged 57,300 boepd. A furtherbreakdown of these figures is provided in the Operational Update for each corearea. 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 the terms ofProduction Sharing Contracts. Average working interest production for 2007 is expected to exceed 80,000 boepd. Realised prices and oil discount Average prices realised during 2006 were significantly higher than those for2005. Realised oil price was approximately US$62/bbl (pre hedges) and US$53/bbl(post hedges) and realised UK gas price was approximately 46p/therm. During 2006 the Group's oil production sold at an average discount ofapproximately 5% to Brent and this level of discount is expected to continue in2007. Overlift position At 31 December 2006, Tullow was in a net overlift position amounting to anestimated 130,000 barrels. Such overlift positions are valued at market valueand, combined with stock movements during the year, give rise to a charge ofapproximately £2.4 million to Cost of Sales. Exploration Write-Off Tullow's exploration write-off for 2006 is expected to be of the order of £30million. This write-off is principally associated with unsuccessful explorationactivities in the UK, Gabon, Pakistan and Angola and new ventures activityduring the year. Capital Expenditure During 2006 Tullow invested approximately £330 million in development andexploration activities. In addition, the Group acquired a package of assets inGabon and purchased 4.25% of the share capital of Hardman Resources ahead ofdeal completion at a total cost for both transactions of approximately £40million. Based on current estimates and programmes, total capital expenditure for 2007 isexpected to amount to approximately £370 million. Net Debt Net Debt at 31 December 2006 was £169.1 million, exclusive of Hardman cashbalances of $89.8 million (£45.8 million). Derivative Instruments At 31 December 2006 the Group's derivative instruments had a net negative markto market value of approximately £21.0 million. Commodity Hedging While all of the Group's commodity derivative instruments currently qualify forhedge accounting, a credit of approximately £9.8 million (£9.1 million aftertaxation) will be recognised in the income statement for 2006. Most of thecredit relates to the improved effectiveness of the hedges, which is largely dueto a better correlation between the underlying oil revenues and the hedgesarising from factors such as narrower crude oil discounts to Brent and thetiming of oil liftings. Foreign Exchange Hedging A credit of £5.9 million (£4.1 million after taxation) will be reflected in theincome statement arising from the foreign exchange derivative instrumentsentered into in respect of the Hardman acquisition. The foreign exchange hedgesdo not qualify for hedge accounting under IAS39 and consequently the creditreflects the mark to market value of the foreign exchange hedges as at 31December 2006. Commodity Hedging Summary At 26 January 2007 the Group's hedge position to the end of 2008 is as follows: Oil 1H-07 2H-07 2008Volume hedged (bopd) 12,000 12,000 8,000Average price of hedged volumes ($/bbl) 48.6 49.7 44.9 Gas 1H-07 2H-07 2008Volume hedged (mmscfd) 78.27 63.70 48.0Average value hedged volumes (p/therm) 49.3 44.0 44.4 Acquisition of Hardman Resources Limited On 25 September 2006, Tullow announced a proposal to acquire Hardman by way of aScheme of Arrangement. Following the approval of the acquisition by Hardmanshareholders and the Australian Courts, the Scheme became effective on 20December 2006 and formal completion, which involved the payment of AUS$ 819.5million and the issue of 65 million Tullow Shares, occurred on 10 January 2007.The integration of Hardman into the Tullow Group is progressing to plan and isexpected to be substantially complete by the end of the first quarter of 2007. Tullow assumed control of Hardman on 20 December 2006 and Hardman's business andassets will be consolidated in Tullow's accounts from that date. A fair valueexercise will be undertaken to determine the values attributable to the acquiredassets and liabilities within the Group's Balance Sheet as at 31 December 2006.Hardman's net cash balances at completion amounted to $89.8 million. The reserves attributable to the Hardman assets will be reflected in Tullow'sreserves statement at 31 December 2006. Tullow plans to undertake acomprehensive internal review of the Hardman reserve base, with particularreference to its Mauritanian interests, and this will take a number of months tocomplete. Operational Update 1) NW EUROPE CORE AREA Tullow's principal interests in NW Europe are in the Southern Gas Basin of theUK North Sea. In 2006 Tullow continued its high level of activity in the region,participating in three exploration discoveries and drilling four successfuldevelopment wells. Production for 2006 averaged 29,530 boepd, 21% above 2005levels. Working interest production(1) 2006 Average (boepd) Current Production (boepd) CMS Area 16,380 21,000Thames-Hewett Area 13,150 16,000UK Total 29,530 37,000 (1) Includes condensate The commercial environment for producers within the UK gas market remainspositive despite recent falls in the gas price driven by unusually warm winterweather, high service costs and rig rates and the commissioning of new importinfrastructure into the UK. For Tullow, this has resulted in a rebalancing ofsome short term discretionary investment away from the UK, however, longer termgas price fundamentals remain strong for indigenous producers and gas priceseasonality continues to provide opportunities for Tullow to optimise productionand maximise value. NW Europe Production and Development UK Growth in Tullow's UK production has been largely driven by the Schooner (Tullow90.35%) and Ketch (Tullow 100%) redevelopment programme. The Schooner-10 wellcame on line in May at 25 mmscfd and Ketch-7 commenced production in October at50 mmscfd. The Ketch-8 production well was drilled in the fourth quarter of 2006and encountered 830 ft of good quality gas-bearing reservoir sands. However,technical problems were encountered during the completion phase and the well hasbeen temporarily suspended. Tullow spudded Ketch-9 in early January 2007 andproduction is scheduled to commence in May. At this time, remedial work onKetch-8 will commence. Following completion of Ketch-8, the Ensco 101 rig willbe released. The production capability of the Schooner and Ketch fields iscurrently of the order of 100 mmscfd and is expected to reach over 140 mmscfdduring 2007. Two projects, Thurne (Tullow 87%) and Kelvin (Tullow 22.5%), receiveddevelopment approval in October 2006. The Thurne field will be developed bysidetracking the Deben well, which has ceased production, and re-using theexisting pipeline and Thames platform reception facilities. Drilling of thehorizontal well is due to commence in early February, with first gas targetedfor September 2007 at a gross plateau rate of 40 mmscfd. The Kelvin field willbe developed with a single well and platform tied back to the CMSinfrastructure. Platform fabrication is under way and the well is scheduled tospud in Q3 2007. First production is targeted for December 2007 at a gross rateof approximately 80mmscfd. Tullow is also considering a number of other fieldsfor potential development. NW Europe Exploration and New Ventures UK Three gas discoveries in 2006, Humphrey, Cygnus and K4, further enhance Tullow'sposition in the CMS area. The 2007 programme includes four Southern North Seagas exploration wells in the Thames-Hewett and CMS areas, and two Central NorthSea oil exploration wells, Acer and Peveril, which are scheduled to spud inFebruary 2007. Tullow has made applications for six Southern North Sea blocks in the UK 24thLicensing Round. The DTI has not yet announced the awards. 2) AFRICA CORE AREA Tullow's African production and development interests are in Gabon, Coted'Ivoire, Congo (Brazzaville), Equatorial Guinea, Mauritania and Namibia. Tullowalso has exploration interests in Mauritania, Gabon, Senegal, Cameroon, Uganda,Equatorial Guinea, Angola, Tanzania, Madagascar, Ghana, Cote d'Ivoire and Congo(DRC). In 2006 Tullow continued to invest in its producing and developmentassets, which delivered strong production growth and performance whilstmaintaining an active exploration and new ventures programme across the region.With the Okume Complex on stream and with the addition of the Mauritanianproduction following the Hardman acquisition, Tullow's Africa production isexpected to average over 40,000 boepd in 2007. Working interest production 2006 Average (boepd) Current Production (boepd)Congo (Brazzaville) 6,170 5,600Cote d'Ivoire 6,390 6,400Equatorial Guinea 5,740 7,700Mauritania Nil 4,100Gabon Tchatamba 6,440 6,400 Niungo 5,060 5,900 Other Gabon 3,620 3,250Africa Total 33,420 39,350 Africa Production and Development Congo (Brazzaville) The development and infill drilling programme on the M'Boundi Field (Tullow 11%)continues and 58 wells are currently on stream. Average gross production for2006 was 55,000 bopd. Water injection into the field commenced on 20 January2007 and injection rates are expected to increase to 60,000 bwpd during theyear. Once the initial results of the water injection project are assessed, itis anticipated that a decision will be made to extend water injection to 120,000bwpd over the full field during 2008, thereby increasing the ultimate fieldrecovery factor. Equatorial Guinea In 2006 three infill production wells and two water injection wells were drilledon the Ceiba field (Tullow 14.25%) bringing gross production to a 2006 averageof 40,000 bopd and a current rate of 45,000 bopd. The 2007 infill drillingprogramme, comprising three water injectors and three producers, is aimed atmaintaining an average production rate of 40,000 bopd for the year. First oil from the Okume Complex (Tullow 14.25%) was achieved in December.Drilling is currently in progress on the Oveng and Elon fields and will continuethroughout 2007. In the second half of the year wells will also be drilled onthe Okume and Ebano fields. Current production is in excess of 10,000 bopd fromthree wells and will increase steadily to a plateau of 60,000 bopd in 2008 asmore wells are brought on stream. Cote d'Ivoire Following the very successful East Espoir (Tullow 21.33%) infill drillingprogramme, the rig moved to West Espoir (Tullow 21.33%) in mid 2006 and oilproduction from the field commenced on 26 July 2006. To date, three productionwells and two water injection wells have been completed, resulting in averagegross production in 2006 from the Espoir fields of 31,000 boepd. Six West Espoirproduction wells are planned for 2007 and drilling is expected to continue into2008. These operations, and the onset of water injection are expected toincrease gross Espoir production to a peak of 35,000 boepd in 2007. Mauritania The infill drilling programme on the Chinguetti field (Tullow 19.01%) commencedon 29 December 2006 with the C-18 well in the south west of the field. The wellhas been drilled to a total depth of 2,883m and encountered a gross oil columnof approximately 213m which is in line with expectations. The well also appearsto be receiving pressure support from the C-8 water injection well. Followingproduction optimisation work on the C-14 well, the C-18 well will be preparedfor production and is forecast to come on stream in late February. Four further infill wells are scheduled to commence during the third quarter.The final locations of the wells will be subject to the results of the highdensity 3D seismic and 4D seismic to be shot over the Chinguetti field in March2007. Gabon Production from Gabon in 2006 averaged 15,120 bopd. Activity during the yearfocused on optimisation of the current producing assets, commercialisation ofundeveloped assets and the acquisition of additional licence interests. The new phase of appraisal and development drilling in the Niungo field (Tullow40%) commenced in September 2006. The first appraisal well to the north of thefield proved to be oil-bearing and delineates the northern limit of the field.Since then, three further successful development wells have been drilled andhave assisted in increasing gross field production to over 15,000 bopd. Thisprogramme is continuing with three further infill wells and will be followed byan exploration well along trend to the south of Niungo in the Nziembou Licence,which is expected to commence before the end of the first quarter. Tchatamba (Tullow 25%) production was curtailed during the year due to down-holepump failures in a number of wells and delays in obtaining services andsupplies. However, gross production had recovered to close to 27,000 bopd inlate December 2006 following workovers on three wells in November and December. Development of the first Etame satellite, the Avouma field (Tullow 7.5%), wassuccessfully completed in December 2006 with the installation of the platformand flowlines. First production commenced on 23 January 2007 and is now at agross rate of over 5,000bopd. This will complement Etame Field production(Tullow 7.5%) which has been outperforming expectations. Detailed planning for afurther Etame satellite, the Ebouri discovery (Tullow 7.5%), is under way with aview to first production during 2008. Tullow has acquired a package of assets from the Gabonese Government through a50:50 Joint Venture with AIC-Petrofi Limited. The package comprises interestsin three producing fields and back-in rights to a further nine explorationlicences. Two additional fields are awaiting development approval and areexpected on stream over the next 18 months. The acquisition increases Tullow'snet production by approximately 350 boepd and is expected to contributeapproximately 1,000 boepd by early 2008. Africa Exploration and New Ventures Uganda and Congo (DRC) Tullow has the leading acreage position in the Albertine Basin, holding between49 and 100% in five licences in Uganda and Congo (DRC). Five successfulexploration wells have been drilled on the Ugandan blocks since the beginning of2006. Tullow consolidated this position with the acquisition of Hardman assumingoperatorship of Block 2 in Uganda and increasing its interest in the Block to100%. This enhanced position increases the Group's exposure to significantupside potential and also enables it to exercise greater operational control. The most recent exploration well, Kingfisher-1, is currently drilling to atarget depth of between 3,000 and 4,000 metres. To date the well hasintersected two significant oil-bearing intervals. The first interval, with netpay of 10m, was encountered at 1,783m and was successfully tested in earlyNovember 2006 at a maximum flow rate of 4,120 bopd. The second interval,evidenced by wireline logging and formation pressure testing, with a net pay ofapproximately 40m, was encountered between 2,260m and 2,370m. It is planned totest this second interval following completion of the drilling operations. In light of the drilling and testing results and the large upside potentialassociated with the Kingfisher, Ngassa and Pelican prospects, an aggressiveexploration and appraisal programme in Uganda and Congo (DRC) is planned. Thisprogramme, which comprises 2D and 3D seismic and further exploration/appraisaldrilling, will run into 2008 and probably beyond. In addition, the Group isreviewing the potential for an Early Production System and conceptual studiesare ongoing. Namibia The Kudu gas field (Tullow 90%) represents a major energy opportunity forSouthern Africa and Tullow is focused on achieving significant technical andcommercial progress during 2007. Successful development of Phase I of Kudu has the potential to make a veryimportant contribution to Namibia's long term power needs and Tullow places ahigh priority on achieving project sanction at the earliest opportunity. Inaddition, plans for a two well appraisal campaign to test the reserves upside ofKudu are progressing and drilling is scheduled to commence in April 2007. In parallel with the ongoing technical work, Tullow is considering theintroduction of a partner into the project. Strong interest has been shown andcommercial negotiations are expected to be concluded over the coming months. Ghana In 2006 Tullow was awarded operated interests in the Shallow Water Tano block(Tullow 85.5%) and the Deepwater Tano block (Tullow 49.95%) and farmed into theadjacent non-operated West Cape Three Points (Tullow 22.9%) licence. Theevaluation of the deep water acreage is progressing with the first explorationwell on the Mahogany prospect planned for May 2007. In addition, the evaluationof the low impact undeveloped oil and gas discoveries in the Shallow Water Tanoblock is proceeding and an appraisal well on one of these accumulations isscheduled to spud in May 2007. 3) SOUTH ASIA CORE AREA In South Asia, Tullow has exploration, development and production interests inPakistan and Bangladesh and exploration interests in India. Developmentactivities have progressed significantly, culminating in the declaration ofcommerciality on the Bangora/Lalmai field in Bangladesh on 3 December 2006. InIndia, an extensive seismic programme has been completed on Block CB-ON/1 andplanning has commenced for a multi-well drilling campaign in 2007. Working interest production 2006 Average (boepd) Current Production (boepd)Pakistan 190 160Bangladesh 1,580 3,000South Asia Total 1,770 3,160 South Asia Production and Development Bangladesh In 2006, the successful appraisal programme for Bangora/Lalmai (Tullow 30%)continued with a 3D seismic survey and three new wells. The appraisal wellsdrilled to date have each encountered good quality reservoir and a further well,to the north of Bangora-1, was spudded in early January 2007. Combinedproduction from Bangora-1 and Bangora-2 is currently 60 mmscfd. Following the success of the appraisal programme on the Bangora/Lalmai field, aDeclaration of Commerciality was submitted to the Bangladesh authorities in 2006and field development planning has commenced. Pakistan The development project on Chachar (Tullow 75%) is well advanced with two newdevelopment wells and the original discovery well prepared for production.Construction of the production facility is nearing completion and it isanticipated that production will commence in March 2007 at 20-25 mmscfd. South Asia Exploration and New Ventures Pakistan A total of 311km of seismic data has been acquired on the Kohat (Tullow 40%)licence. Data processing is ongoing and Tullow plans to spud the first well onthis highly prospective block in the second half of 2007. India Exploration on Block CB-ON/1 (Tullow 50%) in the Cambay Basin is one of Tullow'sthree key campaigns for 2007. Significant progress has been made during thepast year with a block wide, 1,500km 2D seismic acquisition programme.Interpretation and integration of the data is in progress and there is alreadyevidence of a diversity of play types including the stratigraphic sections whichoccur to the north in the Rajasthan fields and structures analogous to those inthe oil fields to the south. Based on a growing inventory of leads andprospects, a multi-well drilling campaign is expected to commence during thesecond half of 2007. ENDS FOR FURTHER INFORMATION CONTACT:Tullow Oil plc Citigate Dewe Rogerson Murray Consultants(+44 20 8996 1000) (+44 207 638 9571) (+353 1 498 0300)Aidan Heavey Martin Jackson Joe MurrayTom Hickey Chris Perry CONFERENCE CALLS Conference calls hosted by Aidan Heavey (Chief Executive), Paul McDade (ChiefOperating Officer), Angus McCoss (General Manager Exploration) and Tom Hickey(Chief Financial Officer) will be held today at 09:30 (GMT) and 15:00 (GMT): 09:30 UK/European Conference Call For UK and international participants please call +44(0)20 7138 0827 and requestto be connected to the Tullow Oil teleconference. For participants in Ireland, please call +353(0)1 655 0485 A replay facility will be available from one hour after the conference call forseven days. Please call +44(0)20 7806 1970, access code: 9494732#. 15:00 US Conference Call Please call +1 480 629 9564 and request to be connected to the Tullow Oilteleconference. A replay facility will be available from one hour after the conference call forseven days. Please call +1 303 590 3030, access code: 3684500. Disclaimer This announcement contains certain operational and financial information inrelation to 2006 that 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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