London, UK | – British independent oil & gas exploration and production group Tullow Oil plc is one of many operators cutting its exploration spending plans for this year but is reallocating a chunk of its capital to maintain its momentum offshore West Africa, where it is committed to delivering high-margin oil production via its existing producing assets and discoveries offshore Ghana to help it generate long-term cash flow for its future business.
The UK independent’s CEO, Aidan Heavey, said ahead of the company’s financial results next month: “Tullow has already taken steps to strengthen the business to adapt to current market conditions. This work will continue during 2015 to ensure the group is in a position to benefit when conditions improve. In late 2014, we materially reduced our 2015 exploration capital expenditure and today announce a further cut to this expenditure to $200 million.”
The company will continue to carry out a review of its business to streamline processes and improve efficiencies, with the aim of achieving significant long-term cost savings, he said.
The reallocation of its future capital to focus on its high-margin West African oil production will help it grow output from that area to around 100,000 b/d of oil net to Tullow by the end of 2016. The reduced exploration programme will also predominately focus on a number of high-impact, low-cost exploration opportunities in East Africa, where the company has significant assets onshore Kenya.
Tullow expects to report revenue of US $2.2 billion, gross profit of $0.6 billion and pre-tax operating cash flow of $1.5 billion, it added. It also expects a write-off of $0.4 billion ($0.3 billion post-tax) in relation to 2014 exploration activities primarily relating to Norway, Mauritania and Ethiopia.
The company’s 2015 group capital expenditure is now expected to be $1.9 billion, including the further reduced exploration spend of $0.2 billion (post-Norwegian tax rebate). There is also further scope for Capex reductions going forward, it added, as Tullow enters discussions with partners and suppliers regarding potential savings as industry costs decline.
Cash operating costs for the group’s West African operations remain low, averaging around $13/bbl in 2014, with the producing deepwater Jubilee field offshore Ghana having operating costs averaging around $10/bbl last year.
There is also potential to further drive down costs in the current market ahead of realising synergies related to the combined Jubilee and TEN development operations.
Tullow went on to outline that the Jubilee field exceeded its gross production target during 2014, averaging 102,000 b/d of oil despite restrictions caused by delays in the construction of an onshore gas processing plant by the Ghana National Gas Company. In 2015, average gross production is expected to be at a similar level with production building towards the FPSO’s capacity by the end of the year.
The gas plant is now complete and first commissioning gas was exported in November 2014 from the field. As the gas management constraint is reduced due to increasing gas export, the company will be able to increase production from Jubilee. The TEN development is also progressing very well, it added, and is now more than 50% complete and remains within budget and on-track to deliver first oil mid-2016.