Tullow Oil has reported a post-tax loss of US $1.22 bn for 2020, with production to continue sliding in 2020.
The company took major write downs on its Kenyan and Ugandan operations, of US $430m and US $451m respectively. A decision to cut long-term oil price expectations drove the Kenyan cut, while Tullow completed the sale of its Ugandan assets to Total.
Tullow is sharpening its focus on Ghana, where it plans to drill four wells this year.
“We will start a multi-year, multi-well drilling programme in Ghana next month to deliver sustainable and profitable production growth,” said Tullow’s CEO Rahul Dhir.
Tullow has contracted the Maersk Venturer to carry out a multi-well programme over at least four years. This year, it will drill four wells. These include two Jubilee production wells, one water injector and on TEN a gas injector, which will support two Ntomme producers.
This drill should offset near-term production decline. Output should “materially recover” in 2022.
Tullow has said it expects to reduce drilling costs by 20% in this drilling programme.
“Our self-help initiatives will deliver c. US $1bn, including over US $700m from asset sales in the past year. Strong business delivery, increased liquidity and improving commodity prices support constructive refinancing discussions,” Dhir said.
Production in 2020 averaged 74,900 barrels per day of oil. The company expects this to fall to 60,000-66,000 bpd in 2021, although this does not include the sale of assets in Equatorial Guinea and Gabon. Tullow expects these countries to supply 4,800 bpd and 15,400 bpd respectively this year.
“Tullow has survived a tempestuous 2020 by bringing in a new CEO, refocusing on its productive assets, and rationalising its portfolio,” said Third Bridge’s Jack Winchester.
“A recovering oil price alleviates some of the pressure on Tullow, but significant debt levels mean they’ll still be anxious for commodity prices to grow further to continue the deleveraging we saw in 2020,” he said.
“Our experts are positive about the company’s Jubilee and TEN fields in Ghana which will receive a large chunk of the company’s capex over the coming years. The Jubilee field is a relatively low cost asset and our experts say the TEN field could yield large volumes increases from further drilling at fairly low risk.
“Meanwhile, the rest of Tullow’s portfolio outside of West Africa is likely to take a backseat. The licence extension, granted to Tullow’s Kenyan operation will give the company time to decide what to do with this asset.”
During 2021, Tullow will spend US $265m on capital expenditure and US $100m on decommissioning.
The company suspended decommissioning on the Chinguetti field in Mauritania in March 2020. This resumed in January 2021. The country had shut its borders as a result of COVID-19.
Tullow will begin decommissioning on its Banda and Tiof fields in the fourth quarter of this year, it expects. Costs have doubled for this work in Mauritania from previous plans. Costs around the pandemic and new requiremenrts for seabed clearance have increased the price to around US $30m.
Concerns continue on the company’s debt pile. At the end of 2020, net debt was around US $2.4bn and Tullow is in talks with its financing partners.
Tullow said that it had submitted a liquidity forecast test at the end of February. This has not yet been approved and there is a risk that the company fail this test. If its reserve-based lending (RBL) providers do not approve this, there is a chance that Tullow default as of the end of April and all of its debts come due.
In Kenya, the government extended the licence until the end of 2021. One of the conditions under this requires that the partners submit a field development plan by December 31. Tullow said it expects to submit this by the deadline.