Directors' Report: Business review
Tullow’s well established producing assets lie in the Southern Gas Basin offshore UK and are centred around two gas producing hubs, associated fields and infrastructure. Tullow also has a portfolio of operated exploration blocks offshore the Netherlands where it is looking to capitalise on the exploration success it has experienced in adjacent UK blocks over the last seven years. In 2009, the decision was taken to assign the Group’s Portuguese interests to other licence partners, following completion of an agreed work programme and detailed analysis of the results.
Net UK production for 2009 was in line with expectations at 14,450 boepd (2008: 20,095 boepd). Several factors were responsible for this 28% reduction including the sale of Tullow’s Hewett field interests in 2008, the re-scheduling of in-fill wells in the CMS Area and natural field decline. EHS performance and production efficiency were excellent on the Group’s operated fields throughout the year. Successful in-fill drilling and well interventions were completed on Boulton and Murdoch and will help support future production levels.
In the Thames Area, the modifications to allow combined flow from the Wissey and Horne & Wren fields were completed in May 2009, thereby boosting Thames infrastructure throughput and improving asset longevity. The Bure North development well targeted an infill opportunity in the Bure field but results showed that the reservoir compartment was depleted by other producing wells in the area and consequently the well was abandoned.
In the CMS Area, the operated Ketch field performed above expectation during 2009. During July 2009, works to tie-in the third-party Topaz development to the Schooner platform were successfully completed. Production from this field commenced in November adding tariff income and reducing unit operating cost of the field. The KA-08Z infill well on the Ketch field has been sanctioned and is due to spud in the second quarter of 2010. Planning and design work is well advanced and a rig has been secured.
In 2009, three non-operated infill wells were drilled on the Murdoch and Boulton fields. These wells added over 100 mmscfd to CMS gross production. Further infill opportunities are being considered for 2010 including a re-drill of the Boulton B1 well which ceased production in August following a build-up of salt in the well bore.
The Harrison discovery provides the most attractive near term development opportunity in the CMS Area. Work on this project progressed in 2009 and a Joint Operating Agreement was signed by the field partners. Major capital expenditure was deferred to 2010 and first gas is now expected in 2012. In addition, the partnership is evaluating drilling possibilities on the adjacent Cameron prospect. The scope of the Harrison development is likely to include the option to tie-in a successful Cameron discovery.
Leveraging on the success and experience gained in the Carboniferous play of the UK CMS, Tullow has built an extensive exploration position within the adjacent Carboniferous province of the Dutch offshore and is now in a strong position to exploit this play. In April 2009, Tullow added to the six operated exploration blocks already held with the award of Block E11. Tullow and its partners initiated two major regional 3D seismic reprocessing programmes in 2009. Over 1,000 sq km of seismic on the E and D blocks have been included and results thus far are very encouraging. Exploration drilling is planned for later in 2010.
Tullow holds interests in three blocks in the Alentejo Basin – Lavagante, Santola and Gamba. Interpretation of 3,000 km of proprietary 2D seismic and over 5,000 km of 2D has resulted in a number of high-risk exploration leads being developed. Following completion of the agreed work programme and a detailed evaluation of the full subsurface dataset in 2009, Tullow plans to assign its interest in this acreage to other licence partners.