Operational Update, they are projecting a 50% increase in 2017 production
PRODUCTION
Tullow’s West Africa 2016 oil production was in line with recent guidance averaging 65,500 bopd. This includes 4,600 bopd of
production-equivalent payments received under Tullow’s Business Interruption insurance policy for the Jubilee field. In Europe,
working interest gas production performed in line with expectations and full year net production averaged 6,200 boepd.
In 2017, West Africa working interest oil production, including production-equivalent insurance payments, is expected to
average between 78,000 and 85,000 bopd. Europe working interest gas production is expected to average between 6,000 and
7,000 boepd.
WEST AFRICA
Ghana
Jubilee
Full year 2016 gross production from the Jubilee field averaged 73,700 bopd (net: 26,200 bopd). Tullow has also received
reimbursements for turret remediation costs and Jubilee production field losses in 2016 of approximately $8 million (net) under
the Hull and Machinery insurance policy and approximately $72 million under Tullow’s corporate Business Interruption
insurance cover which equates to 4,600 bopd of net equivalent production.
The Jubilee turret remediation work is progressing as planned and the FPSO is expected to be spread-moored on its current
heading by the end of January 2017. This will allow the tugs currently required to hold the vessel on a fixed heading to be
removed, significantly reducing the complexity of the current operation. The capital costs associated with this and subsequent
remediation works are expected to be covered by the Joint Venture Hull and Machinery insurance policy.
The next phase of the project will involve modifications to the turret systems for long-term spread-moored operations. In
addition, the assessment of the optimum long-term heading continues, in order to determine if a rotation of the FPSO is
required. Detailed planning for this continues with the JV Partners and the Ghanaian Government, with final decisions and
approvals being sought in the first half of 2017, with work expected to be carried out in the second half of 2017. It is anticipated
that a facility shutdown of up to 12 weeks may be required during 2017. However, significant work is ongoing to look at ways to
optimise and reduce any shutdown period.
Tullow expects 2017 production from the Jubilee field to average 68,500 bopd (net: 24,300 bopd), assuming 12 weeks of
shutdown associated with the next phase of remediation works. Tullow’s corporate Business Interruption insurance cover is
expected to continue to payout in respect of lost production associated to the turret remediation works, and the equivalent
average annualised net production is around 12,000 bopd, increasing Tullow’s effective net production to around 36,300 bopd
in 2017.
TEN
Following first oil from TEN in August 2016, the oil production, gas compression/injection and water injection systems were
commissioned and are now operational. In early January 2017, the capacity of the FPSO was successfully tested at an average
rate of over 80,000 bopd during a 24 hour flow test.
Tullow Oil plc – Trading Statement and Operational Update – 11 January 2017 Page 2
Gross annualised working interest production in 2016 averaged 14,600 bopd (net: 6,900 bopd), in line with latest guidance.
Production testing and initial results from the 11 wells indicate reserves estimates for both Ntomme and Enyenra to be in line
with previously guided expectations. However, due to some issues with managing pressures in the Enyenra reservoir and
because no new wells can be drilled until after the ITLOS ruling later this year, Tullow plans to manage the existing wells in a
prudent and sustainable manner. As a result, Tullow expects production from TEN to be around 50,000 bopd (net: 23,600bopd)
in 2017, although work continues to consider ways to increase production in 2017.
Gas production from the TEN fields is currently being re-injected, with gas export expected to commence later in 2017.
Proceedings at ITLOS, with regard to the maritime border dispute between Ghana and Côte d’Ivoire continue, with oral hearings
expected 6-17 February 2017, and a final ruling anticipated in the fourth quarter of 2017.
Non-operated Portfolio
2016 West Africa net non-operated production was in line with expectations at 27,800 bopd. Lower oil prices have resulted in
significantly lower levels of investment and 2017 net production is expected to be around 22,000 bopd. However, flexibility
remains in the portfolio, with options to increase capital investment in 2017 and subsequent years to reduce the production
decline in these mature assets.
Full year gas production from Europe averaged 6,200 boepd in 2016, in line with expectations. Tullow expects 2017 European
gas production to be around 6,500 boepd.
EAST AFRICA
Kenya
A four-well exploration and appraisal programme commenced in mid-December in the South Lokichar Basin with the drilling of
the Erut-1 well, located in the north of the basin, approximately 11km north of the Etom field. The well is nearing completion,
with a result expected shortly. The rig will then move to drill Amosing-6, a well targeting undrilled volumes, before moving to
Ngamia-10, an appraisal well to the south of the Ngamia discovery. The planned final well in the programme is the Etete
prospect, a structure approximately 2km south of the Etom field. This programme could be extended by up to four additional
wells in 2017, depending upon the assessment of the results from the initial four wells.
Water injection trials have been successfully completed on the Amosing discovery in the South Lokichar Basin. Data collected
shows the viability of water injection for development planning. A similar programme of water injection tests on the Ngamia
discovery are scheduled to commence later this month.
Work continues on the Early Oil Pilot Scheme, full field development planning and the export pipeline.
Uganda
On 9 January 2017, Tullow announced that it has agreed a substantial farm-down of its assets in Uganda to Total. Under the Sale
and Purchase Agreement, Tullow has agreed to transfer 21.57% of its 33.33% interest in Exploration Areas 1, 1A, 2 and 3A in
Uganda to Total for a total consideration of $900 million. The farm-down leaves Tullow with an 11.76% interest in the upstream
and pipeline, which will reduce to 10% when the Government of Uganda formally exercises its right to back-in.
The consideration is split into $200 million in cash, consisting of $100 million payable on completion of the transaction, $50
million payable at FID and $50 million payable at first oil. The remaining $700 million is in deferred consideration and represents
reimbursement by Total in cash of a proportion of Tullow’s past exploration and development costs. The deferred consideration
will fund Tullow’s share of the development and pipeline costs as the Lake Albert Development reaches a series of key
milestones. Completion of the transaction is subject to government approval, after which Tullow will cease to be an operator in
Uganda.
This agreement will allow the Lake Albert Development to move ahead and increases the likelihood of FID around the end of
2017.
NEW VENTURES
Tullow has continued to advance its operations in South America and plans are ongoing to drill the potential high impact Araku
prospect (Tullow: 30%), offshore Suriname, in the second half of 2017. In Guyana, planning is ongoing to acquire 3D seismic
data over the offshore Kanuku and Orinduik licences located updip of the Liza oil discovery.
The divestment of the Norway business is almost complete, with the sale of four licences to Statoil and eight licences to Aker BP
ASA completed before year end 2016. A further three sales were executed in December 2016, which are expected to be
completed in the first half of 2017.
Tullow Oil plc – Trading Statement and Operational Update – 11 January 2017 Page 3
Financial Update
Following the scheduled amortisation of RBL commitments in October 2016, the Group ended the year with available credit
under the RBL facility of $3.3 billion. At the end of 2016, Tullow had total facility headroom and free cash of $1 billion and net
debt of $4.8 billion, which includes the $300 million Convertible Bond offering in July 2016. The improvement in the year end
net debt and liquidity position versus previous forecasts is largely due to the cashflow contribution from TEN and ongoing capex
and cost management.
In 2016, Tullow expects to deliver revenue of c.$1.3 billion, gross profit of c.$0.5 billion and operating cash flow of c.$0.7 billion.
Due to the current low oil price and the impact of disposal and farm-down transactions, a number of accounting charges are
forecast to be incurred in the 2016 income statement. These charges comprise a goodwill impairment of c.$0.2 billion, a posttax
exploration write-off of c.$0.3 billion, a post-tax impairment charge of c.$0.1 billion and an onerous service contract charge
of c.$0.1 billion.
In 2016, Tullow’s oil and gas hedge programme contributed $363 million to revenues, and as we look ahead to 2017, the
hedging position continues to provide protection of future revenues and cashflows. The mark-to-market value at the end of
December 2016 was $91 million and Tullow will benefit in 2017 from approximately 60% of entitlement oil production hedged
at an average floor price of around $60/bbl on a pre-tax basis.
Capital expenditure will continue to be carefully controlled during 2017. The Group’s capital expenditure associated with
operating activities is expected to reduce from $0.9 billion in 2016 to $0.5 billion in 2017. The 2017 total comprises Ghana capex
of c.$90 million, West Africa non-operated capex of c.$30 million, Kenya pre-development expenditure of c.$100 million and
Exploration and Appraisal spend limited to c.$125 million. Uganda expenditure of $125 million will be offset by the Uganda
farm-down deferred consideration.
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