Page 5 - LatAmOil Week 49 2019

LatAmOil COMMENTARY LatAmOil
 At Jubilee, it explained, Ghana National Gas Co. (GNGC) has reduced the amount of natural gas it receives from Tullow, which provides these volume at no cost, as well as “increased water cut [at] some wells and lower facility uptime.”
At the same time, it said, work on the TEN project has also been affected by issues at Enyenra. The field’s output is dropping more quickly than anticipated, and “mechanical issues [at] two new wells have limited the well stock available,” it said.
“Thorough reassessment”
Tullow stressed in its statement that its financial performance had remained “solid.” It also said that it expected its reserves to remain steady as of the end of 2019, with an independent audit showing that the increase in reserves at Jubilee and Ntomme was being offset by a 30% decline in reserves at Enyenra.
“In light of these new production forecasts, there will be a thorough reassessment of the group’s cost base and future investment plans in order to allocate appropriate capital to the group’s core production assets, development projects and continued exploration,” the state- ment said.
It continued: “The board believes that a series of actions will help deliver sustainable free cash flow. These actions include reducing capital expenditure, operating costs and corporate overheads. In 2020, the board expects the group to generate underlying free cash flow of at least $150mn at $60 per barrel after a group capital investment of [about] $350mn. Considering this level of expected free cash flow, the board has decided to suspend the dividend.”
Disappointment
Thompson, for her part, commented: “I would like to thank Paul and Angus for all their hard work and dedication to Tullow over many years. They leave behind a business that has delivered two major offshore developments in Ghana, made significant oil discoveries in Kenya and Uganda and has a high-impact exploration port- folio. These remain the key building blocks of our business today.
“The board has, however, been disappointed by the performance of Tullow’s business and now needs time to complete its thorough review of operations. A full financial and operational update will be provided at Tullow’s full-year results [presentation] on February 12, 2020, with an update on progress to be given in the group’s trading statement on January 15, 2020.
“Despite today’s announcement, the Board strongly believes that Tullow has good assets and excellent people capable of delivering value for shareholders. We are taking decisive action to restore performance, reduce our cost base and deliver sustainable free cash flow.”
The resignations dealt a blow to Tullow’s stock prices, which have already fallen by more than 65% since the beginning of this year. Bloomberg quoted industry analysts as saying on December 9 that recent events had increased
the likelihood that the company might eventu- ally be sold off.
Next steps in Guyana
Nevertheless, there are some positive signs. Tullow does not appear to be giving up on Guy- ana, despite the disappointment it experienced when it determined that Joe-1 and Jethro-1, the two wells drilled at the offshore Orinduik block, contained heavy sour crude rather than a more valuable light sweet grade.
On December 10, one of Tullow’s partners in the Orinduik project confirmed that the pro- ject was moving ahead. In a statement, Canada’s Eco-Atlantic Oil & Gas said that it had joined Tullow and France’s Total in submitting an offi- cial notice of intent to enter into the next stage of exploration work, known as the first renewal period.
This move will allow the parties to launch the first renewal period on January 14, 2020. It will extend the original agreement that the parties signed for the project in January 2016 by another three years – that is, until January 13, 2023, at which point they will be eligible to enter into the second renewal period.
Gil Holzman, the president and CEO of Eco Atlantic, said that Tullow and its partners were committed to making a thorough study of Orinduik. “We have met and exceeded all of the licence commitments to date and stand ready to further appraise and explore the sig- nificant hydrocarbon potential of the Orinduik block licence, both in the proven discoveries of the Tertiary layer and in the deeper Cretaceous layer, estimated to hold an additional 32bn bar- rels of oil [in] gross unrisked prospective (P50) resource, according to the CPR resource report published in March 2019,” he said.
“We are very pleased that the JV partners have unanimously elected to enter into the next phase of exploration and development at the Orinduik Block ... As we look to next year, we will continue to work closely with all our stakeholders, including our host governments and the JV partners, to determine the budget and drilling programme for 2020, and we look forward to publishing an updated [report] on [the] Orinduik block and sharing our upcoming plans on our Namibian and Guyanese licences over the coming months,” he added.. ™
What’s next for Tullow? (Photo: Tullow Oil)
“ not appear to
be giving up on Guyana, despite recent disappointments at Orinduik
Tullow does
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