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Tullow’s exploration-led strategy is unique in the oil and gas sector and is focused on exploring for oil. Being exploration-led means we have set up our business to have sufficient cash flow in place to invest at least $1bn on exploration each year. This is funded solely through cash flow from our producing fields, so we are selective in choosing the assets we take forward through development and into production.
When we have a discovery, we make a decision on when we monetise that success and create value for our shareholders. There are natural decision points for monetisation: soon after exploration success; through the appraisal phase; at the time of the Plan of Development approval; when first oil is achieved or when an asset matures and requires investment to continue production. Tullow looks at each of these decision points across our portfolio, to select the right time to realise value.
Our financing initiatives are part of a clear funding strategy that underpins our business strategy. This gives us both financial strength and balance sheet flexibility. We combine commercial bank facilities, debt capital markets, multilateral project financing, operating cash flow and portfolio management to fund the business. Growth in production has allowed us to initiate the divestment of our non-core production in Asia and the Southern North Sea, while sustaining our cash flow from operations. This is part of our drive to upgrade our portfolio and move production growth to higher-value oil in new fields. We also have an ongoing process to reduce our equity in the TEN development in Ghana, where first oil is expected in 2016.
Tullow has $4.3 billion debt facilities and, as at the end of December 2013, we had net debt of $1.9 billion and an unutilised debt capacity of $2.4 billion. We also maintain a conservative financial profile and an appropriate gearing level of 35% at the end of the year.
Appraisal $1bn + p.a.
~$4bn debt facilities