31st Jan 2006 07:00
Tullow Oil PLC31 January 2006 News release Tullow Oil plc Trading Statement and Operational Update 31 January 2006 - Tullow Oil plc (Tullow) issues this combined Trading Statementin respect of its financial year to 31st December 2005 and Operational Update inrespect of Production, Development and Exploration activities during the periodSeptember 2005 to January 2006. Tullow is a leading independent oil and gas, exploration and production group.The Group has interests in over 90 production and exploration licences in 16countries and focuses on three core areas: NW Europe, West Africa and SouthAsia. The Trading Statement is in advance of the Group's Full Year Results, which arescheduled for release on 29 March 2006. The information contained herein hasnot been audited and is subject to further review. HIGHLIGHTS Trading for 2005 was at record levels, with a strong production performancecombining with continuing favourable oil and gas pricing. Production and Reserve Enhancement • In 2005 the Group drilled 50 development wells and completed the operated Horne and Wren development increasing average Group working interest production to 58,450 boepd, 44% ahead of the average for 2004. • Current group working interest production is approximately 66,000 boepd with Tullow's net UK gas production contributing at an all time high of 200 mmscfd. • Further strong production growth is expected from the ongoing development of the Schooner and Ketch fields, the Okume Complex and the M'Boundi, West Espoir, Bangora and Chachar fields. • Working interest production in 2006 is anticipated to average approximately 68,000 boepd and to reach 75,000 boepd by year end. • Drilling activity on the Schooner and Ketch project will be enhanced by a second rig to drill the Schooner NW Extension prospect during Q2 2006. Exploration and Appraisal Drilling • During 2005, 11 exploration wells were drilled including the recent wells in Angola, Mauritania and Uganda of which five discovered hydrocarbons. • The Mputa-1 discovery in Uganda has proved the existence of a working petroleum system in the basin, which has significantly reduced the risk on Tullow's prospects in this extensive region. A second well will be drilled in February on the Waraga-1 prospect. • UK exploration has been particularly successful. The K3 discovery significantly boosts the potential of adjacent blocks where numerous prospects have been identified of which four will be drilled as part of the 2006 drilling campaign. • Over the next three months a further eight exploration wells will be drilled including three wells in the UK and high impact wells in Uganda and Equatorial Guinea. • A rig has been contracted to drill two appraisal wells on Kudu, to test the significant upside potential of this gas field, and will start drilling in early 2007. Commenting today, Aidan Heavey, Chief Executive of Tullow said: "The strong asset performance and production growth seen in 2005 is expected tocontinue with significant ongoing development projects in each of our coreareas. This development work will be complemented by an exciting explorationprogramme that includes a number of wells in regions with very high impactpotential." CONFERENCE CALL There will be a conference call at 09:30 (GMT) today, hosted by Aidan Heavey,Chief Executive, Paul McDade, Chief Operating Officer and Tom Hickey, ChiefFinancial Officer of Tullow Oil plc: 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 6550485 A replay facility will be available from one hour after the conference calluntil 18:00 (GMT) on Tuesday 7 February. Please call +44(0)20 7784 1024, accesscode: 4764302#. 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 Trading Statement This trading statement is provided for the year ended 31st December 2005 inadvance of the Group's 2005 Preliminary Results, which are scheduled for releaseon 29 March 2006. The information contained herein has not been audited and issubject to further review. Production Group working interest production for the second half of 2005 averaged 59,550boepd, giving a 2005 average of 58,450 boepd, which is 44% ahead of the 2004production level. A further breakdown of these figures is provided in the Operational Update undereach core area. Production figures remain subject to final reconciliation and donot equate to sales volumes. This is due to variations in lifting schedules andbecause a portion of the production is delivered to host governments under termsof Production Sharing Contracts. The production figures include 5 monthsproduction from the Alba and Caledonia fields and 7 months production from theNkossa field (offshore Congo (Brazzaville)) prior to their disposals and 9months of production from Schooner and Ketch following completion of theacquisition in late March 2005. Working interest production for 2006 is expected to average approximately 68,000boepd, with year end production reaching 75,000 boepd. Overlift position At 31 December 2005, Tullow was in a net overlift position amounting to anestimated 98,000 barrels. Such overlift positions are valued at market value andaccordingly a charge of approximately £8.2 million will be made to Cost ofSales. In addition a charge of £5.5 million in respect of the Alba and Caledoniaoverlift position at the time of disposal has been made to cost of sales; anequal and opposite amount has been recognised as part of the profit on disposaland consequently the net impact on the income statement is zero. Exploration Write-Off Tullow's accounting policy is to write off in full, to the Income Statement, allcosts relating to pre-licence costs and unsuccessful exploration activities.Based on current estimates, Tullow's exploration write-off for 2005 is expectedto be of the order of £25 million subject to any further technical work. Portfolio Management The Group completed the disposal of the Alba and Caledonia offshore assets inthe UK and the offshore Congo (Brazzaville) assets in June and August 2005respectively. In addition, final income has been recognized in relation toincremental consideration receivable based on reserves and performance of theHorne and Wren fields. The profit on disposal amounts to £40.1 million(inclusive of £5.5 million of overlift outlined above). Capital Expenditure During 2005 Tullow invested a total of £192 million in development andexploration activities. Planned capital investment during 2006 is in the order of £280 million, of whichapproximately 70% will be spent on development activities in the UK, Gabon,Congo (Brazzaville), Cote d'Ivoire, Equatorial Guinea, Pakistan and Bangladeshwith the balance focused on exploration activities. Net Debt and Refinancing Initiatives Net Debt at 31 December 2005 was £138.7 million, inclusive of all cash balances. In September 2005 the Group completed an $850 million refinancing exercise. Thisexercise consolidated existing borrowings into a single facility, which hascreated a more efficient Group financing structure, has materially reduced cashcollateralisation and has created significant flexibility for future growth. International Financial Reporting Standards (IFRS) The Group has adopted IFRS with effect from 1 January 2004, with the exceptionof IAS 39, which has been adopted effective 1 January 2005. IFRS 2 - Share based payments, requires that the fair value of all share basedpayments are charged through the income statement over the vesting period of therelevant awards. The charge in the income statement for 2005 is of the order of£1.5 million. IAS 39 - Financial Instruments, requires all derivatives to be recorded on thebalance sheet at market value. At 31 December 2005 the Group's portfolio ofderivatives had a negative mark to market value of £140.4m. The majority of theGroup's arrangements qualify for hedge accounting and will therefore be largelyreflected in the Income Statement as the related contracts mature. Effectivenesstesting has been undertaken on all the Group's hedges and due to the variationsin crude oil discounts and gas nomination patterns there has been a degree ofhedge ineffectiveness. However it is anticipated that the charge recognised inthe Income Statement for the year ended 31 December 2005 will not differmaterially from the charge of £5.6m recorded for the first six months of theyear. Hedging Summary At 24 January 2006 the Group's hedge position to the end of 2007 is as follows: Oil Hedges H1 06 H2 06 2007 Volume - bopd 10,242 11,217 6,000 Average Price* - $/bbl 41.0 43.7 41.9 Gas Hedges H1 06 H2 06 2007 Volume - mmscfd 81.7 42.5 10.0 Average Price* - p/therm 57.1 41.5 59.2 * Average hedge prices are based on market prices as at 24 January 2006 andrepresent the current value of hedged volumes Operational Update This Operational Update summarises recent key activities in the Production (P),Development (D), Exploration (E) and Appraisal (A) assets of Tullow Oil plc. 1) NW EUROPE CORE AREA UK In the UK North Sea, Tullow's principal interests are in the Southern Gas Basin.During 2005 Tullow consolidated its position and influence in the region throughthe acquisition of the Schooner and Ketch assets, active participation in the23rd licensing round and the drilling of 3 exploration wells. Each of thesefactors has contributed to the Group's strong production growth in this corearea enabling UK production to recently reach an all time high of 200 mmscfd. Working interest production 2005 Average (boepd) Current Production (boepd)UK Southern North Sea (1) 22,245 33,000UK Oil 2,168 Assets SoldUK Total 24,413 33,000 (1) Includes condensate Schooner (P/D)(Tullow 90.35%) and Ketch (P/D) (Tullow 100%) The facilities maintenance campaign implemented last year has alreadysignificantly improved the uptime of the assets to over 95% and increasedproduction potential to over 50 mmscfd. The field redevelopment programme commenced in November 2005 with the arrival ofthe Ensco 101 drilling rig to drill five new wells and conduct nine workovers onthe Schooner and Ketch fields. The first of these wells, Schooner-10, wasspudded on 24th November and is expected to be completed in February. Thedrilling of Schooner-10 will be followed by the re-drilling of Schooner-7, anexisting but non-producing well. A concurrent campaign of stimulation andremedial work on the existing production wells is also ongoing. The rig willthen move to the Ketch field and drill three development wells and conduct awell optimisation programme on existing producing Ketch wells. A second rig, the Borgsten Dolphin, has recently been contracted to drill the NWSchooner Extension appraisal area during Q2 2006. This opportunity has beenaccelerated to minimise weather downtime by drilling during the summer monthsand, if successful, to benefit from 2007/08 winter gas prices. McAdam (P/D) (Tullow 14%) First production from the McAdam infill development well, an extension of theCMS III project, commenced on 13 October 2005 adding incremental grossproduction in excess of 50 mmscfd. Murdoch (P/D) (Tullow 34%) The Murdoch D10 well, a sidetrack of the D4 well that has been shut in since1998, was completed at the end of December and put on production on 18 January2006 at a gross rate in excess of 30 mmscfd. UK Exploration (E) The K3 exploration well (Tullow 22.5%) in block 44/23b completed drilling inSeptember 2005, having encountered excellent quality gas bearing sands in thetargeted Lower Ketch interval. Development planning is now under way. Thesuccess of this well gives a significant boost to the exploration potential ofthe adjacent blocks where numerous further prospects have been identified. fourof which will be drilled in 2006. Four of these prospects will be drilled in 2006, the first, to test the Humphreyprospect in block 44/16 (Tullow 17.5%), was spudded on 3 January 2006. Thiswell is expected to reach its target depth during February and will be followedby a well on the K4 prospect (Tullow 22.5%) in block 44/23b. A second rig hasbeen contracted to drill the Cygnus prospect in block 44/12 (Tullow 35%), and isscheduled to commence in the first week of February. The fourth of these prospects and up to three further exploration wells areplanned for later in 2006. Romania Costisa-1 (EPI-3) (E) (Tullow 42.06%) The Costisa-1Z exploration well, located in the EPI-3 Brates block in Romania,reached a final total depth of 4,350m on 30 November 2005. An approvedabandonment programme was performed and the Romanian authorities granted thewell "abandoned with conservation" status. This will enable future re-entry ifrequired. Tullow will relinquish operatorship at the end of the FirstExploration Period. 2) 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,Equatorial Guinea, Angola and Cote d'Ivoire. During 2005 Tullow undertooksignificant development and drilling work in its producing assets, whilstmaintaining an active exploration and New Ventures effort throughout the region.The Production and Development successes in the Group's African assets continueto contribute to strong production growth. African production is expected toreach 40,000 boepd in 2007. The recent Exploration successes in Mauritania andUganda also provide enormous encouragement for the future of both basins. Working interest production 2005 Average (boepd) Current Production (boepd)Congo (Brazzaville) 6,052* 6,600Cote d'Ivoire 4,039 4,350Equatorial Guinea 6,052 5,450Gabon 17,480 16,800West Africa Total 33,623 33,200 *includes 1,166 boepd in respect of disposed interests Republic of Congo (Brazzaville) M'Boundi Field (P/D) (Tullow 11%) The development and infill drilling programme on the M'Boundi Field continuedthroughout 2005 and is ongoing, with 11 successful wells completed sinceSeptember 2005. These wells were primarily infill wells targeting the higherproductivity reservoir in the northeast and the thicker section of the lowerquality reservoir in the west. Current gross field production is 60,000 bopd,with 40 wells currently on stream. Four rigs are currently in operation with afifth rig en route. Engineering work at the export terminal was completed atyear-end to facilitate the blending and export of M'Boundi crude with the higherquality N'Kossa blend, thus significantly improving per barrel realisations. Thefurther expansion of the production facilities to 90,000 bopd is in progress,with long lead items already on order. A water injection pilot project will beundertaken during 2006 and if successful will be expanded to the full field. Equatorial Guinea Ceiba Field (P/D) (Tullow 14.25%) The infill drilling programme continued throughout 2005, most recently twoinjection wells C-28i and C-29i were drilled to support the central and southernfield production areas. The first of these wells was completed in September 2005and C-29i is being completed at present. In the third quarter 2005 the C-30production well was drilled and successfully brought on production in December.This infill drilling programme maintained gross field production in excess of40,000 bopd throughout 2005; this infill programme will continue through 2006,with four producers and two injection wells planned. Okume Complex Development (D) (Tullow 14.25%) The Okume Complex comprises the Okume, Oveng, Ebano and Elon fields. TwoTension Leg Platforms (TLPs), being constructed in Korea, are nearing completionand will be installed on the deepwater fields Okume, Ebano and Oveng in March/April 2006. The Central Processing facility and other shallow water facilitiesfor the Elon field are being constructed in the US Gulf Coast. These facilitieswill be installed in two phases, concluding in September 2006. Drilling isexpected to commence with a shallow water jack-up rig and a tender assistedsemi-submersible rig in late 3Q 2006. The development remains on budget and onschedule for first oil by year end 2006. Oil will be blended with Ceiba andexported via the Ceiba FPSO. Cote d'Ivoire East Espoir Field (P/D) (Tullow 21.3%) Two of the planned infill production wells, EP-7 and EP-8 are now on production.These wells have produced beyond expectation, contributing in excess of 5,000boepd each to the increased average field production for the fourth quarter of25,440 boepd. The third infill well, EP-10, a challenging 4.5km step-out, wasdrilled in the last quarter of 2005 and the fourth and final infill well EP-9 iscurrently in progress. These two wells are expected to be on production by endQ1 2006 and are expected to increase field production by a further c.7,500boepd. West Espoir Development (D) (Tullow 21.3%) Progress on the West Espoir development project is well advanced. The jacket andwellhead tower were successfully installed in November 2005, all pipelines havebeen laid and successfully tied back and the Espoir FPSO upgrade is complete.Drilling is expected to commence in May with first oil scheduled for the thirdquarter of 2006. Three production wells and the commencement of the first WestEspoir water injection well are planned for 2006. Gabon Niungo (P/D) (Tullow 40%) The final well in the 2005 Niungo development and appraisal programme, Niu 28,was brought on stream in December. Following the success of the 2005 programmean additional five infill wells and a minimum of two step-out appraisal wellsare planned for 2006. Tchatamba (P/D) (Tullow 25%) A number of electrical submersible pump failures reduced the output from theTchatamba field by 22% in the second half of 2005. These problems have nowlargely been resolved and the field is producing approximately 30,000 bopd. Gabon Exploration (E) The Tullow-operated exploration well on the Equata prospect (Tullow 47.5%)commenced drilling in early December. The well was unsuccessful as the resultsindicated likely compartmentalisation of the structure which would makedevelopment sub-commercial. The well has been plugged and abandoned. Up to four further Gabon wells are planned for 2006, the Akoum-West prospect(Tullow 100%) commenced on 16 January and is expected to complete in February. Namibia Kudu (D/A) (Tullow 90%) Good progress has been made in relation to both the first phase ofcommercialisation of the Kudu gas field, offshore Namibia, via a gas-to-powergeneration project and the appraisal of the significant upside potential. Following completion of the Front End Engineering Design (FEED) study aprequalification enquiry was issued for the four well subsea development andonshore gas conditioning plant. Invitations to bid for the various constructionactivities are expected to be issued during 2006. In parallel with thesetechnical preparations significant progress has been made on the commercial andregulatory arrangements. The Ministry of Mines and Energy in Namibia hasapproved the production licence for the Kudu field area and the Gas SalesAgreement negotiations are nearing completion in parallel with the PowerPurchase Agreement negotiations between Nampower and Eskom. The planning of the two well appraisal programme, to prove the potentiallysignificant upside reserves within the Kudu field, has advanced to the point ofprocuring all the long lead items and contracting a rig to start drilling inearly 2007. Uganda Block 2 (E) (Tullow 50%) The Mputa-1 exploration well in Uganda commenced drilling on 22 December 2005reaching its target depth of 1,186 metres in early January 2006. The wellencountered oil zones over a 221 metre interval and oil samples were recoveredfrom an upper interval between 965 and 975 metres. The well is now being casedand suspended for potential future re-entry. The results are very encouragingas they prove the existence of a working petroleum system in the extensiveAlbertine basin in which Tullow has a 50% interest throughout. While it is too early to determine the size or potential commerciality ofMputa-1, the results significantly reduce the risk of the prospects mapped inBlocks 2 and 3A. The rig will now move to the Waraga-1 location, where drillingis expected to commence in mid-February. The Waraga prospect is a deeper wellof 1,650 metres and has an anticipated well duration of approximately 20 days.Tullow is also in discussion with partners in relation to the potential drillingof the Kingfisher well in Block 3A as part of the current programme. Mauritania Block 1 (E) (Tullow 20%) The Faucon-1 exploration well in Block 1 offshore Mauritania was drilled inDecember 2005 and reached a total depth of 4,170m, encountering a total 96.5m ofpotential reservoir of which the upper 14m is hydrocarbon bearing. Thehydrocarbon fluid samples recovered from the well are currently undergoinglaboratory analysis. While the hydrocarbons encountered are unlikely to becommercial on a standalone basis, the discovery of a working petroleum system inthis under-explored region provides encouragement for Tullow's regional positionin Mauritania and the adjacent St Louis block in Senegal. Angola Block 10 (E) (Tullow 15%) In November 2005 Tullow concluded a farm-in agreement with Sonangol P&P toassume a 15% interest in Block 10 offshore Angola. A two well explorationprogramme commenced in early November and concluded on 15 December with bothwells being plugged and abandoned. Although the wells did not encountercommercial hydrocarbons, they provided critical information to allow furtherevaluation of the prospectivity of this largely unexplored block. Block 24 (E) (Tullow 15%) In January 2006 Tullow concluded a farm-in agreement with Ocean AngolaCorporation, a subsidiary of Devon Energy, to assume a 15% interest in Block 24offshore Angola. A well commenced drilling on the Kabetula-1 prospect in theblock on 22 December 2005 but failed to discover hydrocarbons and was pluggedand abandoned. Both Block 10 and Block 24 are expected to yield further high impactopportunities. 3) SOUTH ASIA CORE AREA In South Asia, Tullow has production, development and exploration interests inPakistan, development and exploration interests in Bangladesh and explorationinterests in India. While activity in this region was limited in 2005, theinitiation of production from the Chachar and Bangora projects, along withongoing exploration and appraisal work in Pakistan, Bangladesh and India havethe potential to materially enhance reserves and revenue from this core area. Working interest production 2005 Average (boepd) Current Production (boepd)Pakistan 413 250South Asia Total 413 250 Bangladesh Block 9, Bangora-1 (A) (Tullow 30%) The Bangora/Lalmai Appraisal Programme, approved in early 2005, made significantprogress during Q3/Q4 2005. The processing equipment for the long term test isin transit to Bangladesh, and the Bangora pipeline has been installed. It isplanned that installation and commissioning of the facility will be completed inthe first quarter of 2006, with first gas at an anticipated rate of 50 mmscfd inthe second quarter. A 3D seismic programme over the entire Bangora-Lalmaistructure is well advanced and the two well drilling programme with two furtheroptional wells is scheduled to commence in the second quarter. Blocks 17 and 18 (E) (Tullow 32%) In December 2005, Tullow reached agreement to farm out a 60% interest in Blocks17 and 18, offshore Bangladesh, to Total. Tullow will retain a 32% interest andOperatorship of the blocks. Pakistan Chachar (D) (Tullow 75%) Following the approval by the Government of Pakistan of the development of theChachar field, the design of the wells and production facilities have beenfinalised. It is planned to drill two wells in the second quarter withproduction scheduled to commence in the third quarter of 2006 at a rate of 20mmscfd. Kohat (E) (Tullow 40%) Following award of the highly prospective Kohat Block in early 2005, a seismictest line was acquired in November 2005, and the full survey is scheduled tocommence shortly. India Block CB-ON-1 (E) (Tullow 50%) The acquisition of approximately 1,200 km of 2D seismic commenced in December2005 on the high potential CB-ON-1 block in the Indian Cambay Basin. It isanticipated that acquisition and processing will be completed in the secondquarter of 2006 and that the first well will be drilled in early 2007. ENDS Disclaimer This announcement contains certain operational and financial information inrelation to 2005, 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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