Why Tullow Oil PLC is cutting expenditure elsewhere and focusing on exploration in East Africa

aiden-heaveyAmid-st the turbulent rage of the faltering oil prices Tullow Oil PLC has resolved to revise its investment priorities and focus on East Africa and Ghana in West Africa come 2015.

In an Interim Management Statement issued on 12th November 2015 Tullow indicated that though exploration will remain a key part of the company’s future growth strategy, the current expectations for the oil price, reduced commercial success from offshore drilling and the lack of asset transactions, returns from drilling complex, deep water wells make the exploration prospect less attractive.

In response, Tullow Oil will now focus the majority of its exploration and appraisal expenditure on its operated onshore East Africa portfolio where as per the interim statement significant value can be created by adding further resources and appraising existing discoveries to progress development in both Uganda and Kenya.

The Chief Executive Officer of Tullow Oil Aidan Heavey says in light of current oil and gas sector challenges including the commodity price environment, the company is reviewing its capital expenditure and cost base to ensure that it is well-positioned for future success.

“Our overall exploration spend will be significantly reduced,” he states, “and will focus primarily on East Africa where we have major basin-opening potential.”

In 2015, Tullow Oil therefore expects to reduce net exploration and appraisal capital expenditure to around $300 million after the Norway tax rebate.

However during the year, Tullow Oil will continue to seek new low cost and highly prospective exploration acreage in its core areas of Africa and the Atlantic Margins to ensure that the business continues to have an industry-leading exploration position.

The reason for this strategic management decision can only be explained by contrasting the exploration prospects of East Africa and the diminishing production assets of the Tullow Oil in Europe.

In 2014, significant exploration and appraisal activity has continued in Kenya. The South Lokichar basin was extended to the North and the South with a discovery at Etom-1 and substantial oil shows seen in Ekosowan-1. A number of successful appraisal wells and flow tests have also been carried out across the basin underpinning the Pmean resource guidance of 600 mmbbls.

Tullow has also embarked upon a series of basin opening wildcat wells in Kenya as it seeks to replicate the success in the South Lokichar and Lake Albert Rift Basins. The first of these, Kodos-1, in the Kerio Basin encountered hydrocarbon shows close to the basin bounding fault.

Following this encouraging result, the next well in the programme, Epir-1, which lies in a sub-basin 25 km north of Kodos-1, will begin drilling during November 2014 with a result expected before year end.

Additionally, the new SMP- 106 rig is currently mobilising to the Engomo-1 wildcat well location in the North Turkana Basin. Drilling will commence in the North Turkana Basin in the coming weeks and a result from this basin testing well is likely early in the New Year.

In 2015, in addition to significant appraisal and testing activity in the South Lokichar Basin, Tullow expects to drill a further 5 basin-testing exploration wells across its acreage in Kenya and Ethiopia.

The current ambition of the Government of Kenya, Uganda and the joint venture partnerships for the development of the Lokichar and Lake Albert resources, including an export pipeline, in early 2016 is simply the other facet which demonstrates the kind of future prospects that Tullow can bank on in East Africa.

Conversely Production from Europe is below expectations due to under-performance from the Schooner, Ketch and Katy assets in the UK.

In October 2014, the sale of 53.1% of Schooner and 60% of Ketch to Faroe Petroleum (U.K.) Limited was completed. In September 2014, Tullow signed an agreement to sell its operated and non-operated interests in the L12/L15 area in the Netherlands along with non-operated interests in blocks Q4 and Q5 to AU Energy, a subsidiary of Mercuria Energy Group Ltd. This deal is expected to complete early in 2015. On 31 October 2014 Tullow completed an agreement to sell its interest in the Norwegian Brage field to Wintershall for a cash consideration of $6.8 milion with the sale being effective from 1 January 2014.

In August, Det Norske, as operator of PL 494 in Norway, announced completion of drilling of wildcat well 2/9-5S. The well was drilled about 30 km east of the Valhall field into the Heimdalsho prospect but did not encounter hydrocarbons.

It therefore  does not surprise that in 2015 Tullow Oil will be focusing its capital spend on producing and development assets, particularly in West Africa where, by 2017, the Group expects to be producing, net to Tullow, over 100,000 bpd of high quality, high margin oil.

[author image=”https://fbcdn-profile-a.akamaihd.net/hprofile-ak-xaf1/v/t1.0-1/c124.38.472.472/s160x160/382687_542277799168103_945715142_n.jpg?oh=387acd68bfd7cfa853a20f91860f050c&oe=54B2D4EB&__gda__=1424963371_27a3c19a5cf536d71e27572bedde2d94″ ]Zakaria Tiberindwa is a Writer, Researcher and Legal Professional. He obtained a Bachelors Degree in Law from Uganda Christian University and has completed his Post Graduate Diploma in Legal Practice at Law Development Centre. He has more than 5- years experience in journalism and creative writing. He has skills in writing, journalism, research, legal aid practice, web design, web-content management, social media marketing, public speaking, training, print magazine-designing, editing, photography and video-shooting and editing. He is a performance poet and has been an active member of Uganda’s largest community of Poets, the Lantern meet of Poets. He blogs at the wireless connection and you can[follow id=”@musumbazak” ] [/author]

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