The Group will announce its full year Trading Statement and Operational Update on 15 January 2015. Full year results will be announced on 11 February 2015.
Commenting today, Aidan Heavey, Chief Executive Officer, said:
“In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success. In 2015, we will be focusing our 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. Our overall exploration spend will be significantly reduced and will focus primarily on East Africa where we have major basin-opening potential. Tullow remains exploration-led and will continue to add further high quality frontier acreage so that, as conditions allow, we can return to drilling the types of prospects that have given us the development portfolio we have today.”
A review of the investment opportunities across Tullow’s portfolio of activities is ongoing and, coupled with the current external environment, is indicating that the Group should re‑allocate capital across the business towards producing assets and the commercialisation of existing discoveries.
The Group’s core oil assets in West Africa – the TEN development project, Jubilee production and the non‑operated West Africa portfolio – will generate significant value and cash flow for the Group and will attract the greatest share of capital in 2015. Exploration will continue to be a key part of Tullow’s future growth strategy. However, given 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 are currently less attractive. In response, Tullow will now focus the majority of its exploration and appraisal expenditure on its operated onshore East Africa portfolio where significant value can be created by adding further resources and appraising existing discoveries to progress development in both Uganda and Kenya. In 2015, Tullow therefore expects to reduce net exploration and appraisal capital expenditure to around $300 million after the Norway tax rebate. During the year, Tullow 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.
In addition, the Group will continue to maintain a conservative financial framework and concentrate on a rigorous approach to both capital allocation and cost control across the Group. Tullow is focusing on maximising value from its asset base and positioning its business to benefit from improved market conditions in the future.
Financial performance for the year to date, before exploration write-offs and impairment charges, is in‑line with expectations. Average working interest production guidance for the Full Year 2014 remains on track for West Africa however Europe production is impacted by underperformance from the Schooner, Ketch and Katy fields. Full Year pre‑tax operating cash flow before working capital is expected to be in the region of $1.7 billion. Capital expenditure for the full year is in‑line with current guidance of $2.1 billion and net debt is expected to be $3.2 billion, with available debt facility headroom and free cash totaling $2.3 billion. Whilst the Board has yet to approve the final Group capital expenditure budget for 2015, it is likely to be in the region of $2 billion and will include TEN expenditure of $900 million. The capital allocation across the Group for 2015 is being planned conservatively on the basis that we will retain our full equity in TEN (47.18%) until first oil. The overall cost of the TEN Project of $4.9 billion has not changed, and the TEN Project remains on track and on budget for first oil in mid‑2016.
In light of the re‑allocation of capital investment towards core producing and development assets, and away from exploration, the Board is in the process of reviewing the Group’s three year investment plan and past capitalised costs. The main focus of the review is on French Guiana, where we have significant costs booked for the Zaedyus discovery and subsequent appraisal wells; and on Mauritania where a decision will be made on which licences to retain and the future plans for the Fregate discovery. While significant upside potential exists, if the Board decides not to allocate near-term capital to these areas, substantial non‑cash exploration write downs will be required for the Full Year.
The impairment charge for 2014 is expected to include an updated assessment of the recoverability of the Uganda contingent consideration, a review of carrying values of all PP&E assets in light of current commodity prices and an assessment of the carrying value of Goodwill in relation to the Spring Energy acquisition in Norway.