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Interim Results 2007 PowerPoint Presentation
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Interim Results 2007

Interim Results 2007

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Interim Results 2007

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  1. Interim Results 2007 Tullow Oil plc Building a Balanced Portfolio of International Exploration and Production Assets

  2. Disclaimer This presentation contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst Tullow believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Group’s control or within the Group’s control where, for example, the Group decides on a change of plan or strategy. The Group undertakes no obligation to revise any such forward-looking statements to reflect any changes in the Group’s expectations or any change in circumstances, events or the Group’s plans and strategy. Accordingly no reliance may be placed on the figures contained in such forward looking statements.

  3. Presentation Contents

  4. Introduction INTERIM RESULTS - 06

  5. Transformation through exploration • Major step change in Tullow’s business • World class discovery in Ghana with billion barrel potential • Developments to more than double commercial reserves • Strong team in place to deliver business expansion • High-impact opportunities to continue growth • Continuous active portfolio management

  6. Finance - Tom Hickey INTERIM RESULTS - 06

  7. 2007 Interim Results summary 1 Before working capital movements 2Including all cash balances Results principally impacted by weaker UK gas price

  8. 2007 Interim Results – Operational performance Revenue down 8% to £285m • Production up 11% to 69,700 boepd* • Balanced revenue mix – Oil 57%:Gas 43% • Realised oil price - $56.1/bbl (1H06: $54.4/bbl) • Realised gas price - 36.9p/th (1H06: 53.3p/th) • Hedging achieved >50% premium over average UK day ahead price Operating Profit down 31% to £111m • Cash Operating Costs – scope for 2H reduction • 1H07 £5.05/bbl (1H 2006: £4.85/bbl) • Depreciation charge influenced by Chinguetti, Schooner/Ketch, oil price • 1H07 £6.27/bbl (2006: £6.13/bbl) Other Costs • Admin Costs include £2.5m IFRS 2, £2.0m for Hardman Resources office closure • Exploration Write off £13.2m (2006 - £17m) • UK, Falklands, New Ventures *Working interest basis £m Revenue £311m Revenue £285m Gross Profit* Operating Cost DD&A Overlift * Gross Profit before admin costs, exploration and disposals

  9. Cashflow, interest and hedging Operating cashflow - £201.3m • £175.5m reinvested in capital programmes • Maintaining interim dividend at 2.0p/share Interest charge - £23.2m (1H06: £9.4m) • Material net debt increase to £514.3m • Incremental debt drawdown of £50m post Hardman Resources acquisition completion • Hardman bridge fees amortised over 18 months – likely to extend bridge • Amortisation of finance fees, abandonment - total £5.5 million IAS 39 Hedging instruments • Oil and gas charge £15.3m – mostly time value • Exchange loss £5.9m – equal and opposite to 2006 gain, no cash impact £m £6.7m £77.2m £363.5m £334.9m £201.3m £175.5m Foreign Exchange Operating Cashflow* Loan Drawdown Interest, tax & divi Capex Hardman acq * After working capital

  10. Hardman Resources acquisition • Deal completed 10 January 2007 • Hardman business consolidated in Tullow financials for 1H07 • 65 million new Tullow shares issued to electing Hardman holders • IFRS 3 – Preliminary Fair Value Allocation exercise undertaken – will be reviewed in 2H07 1Including Deferred tax Uplift of £164.3m • Integration of Hardman now completed • Perth office closed • Uganda team increased • Trinidad licences under negotiation

  11. Well funded capital programmes • Balance shifted due to larger appraisal programmes and postponement of certain UK development programmes • 2007 capital split 55:45 between Development and Exploration • Capex acceleration driven by success in Ghana and Uganda (together 28% of total 2007 capex, 58% of overall exploration expenditure) • H2 appraisal and exploration results will be key driver of 2008 programmes £415m £332m Exploration Development 2007 Forecast Capex by Core Area £415 million 1.9% (8.0) 32.5% (135.0) 3.4% (14.0) NW Europe 10.8% (45.0) Other Africa Uganda Ghana South Asia South America 16.9% (70.0) 34.5% (143.0)

  12. Investing in long term growth • Retain optimal stakes in high value assets • Uganda – Block 2 dilution to fund development • Kudu – Potential additional farmout • Ghana – Largest equity holder • Ongoing portfolio analysis and management • Capital allocation 2008+ • Match funding to asset lifecycles and characteristics • Project Finance • Reserve based loans • Longer term debt • Maintain financial flexibility to maximise asset values

  13. Financial summary • Underlying operating performance remains strong • Hardman complete and fully integrated • Effective Hedging policies generating and protecting value • Major capital programmes driven by exploration success • Investment focus on higher value assets • Preparing the business and finances for the long term

  14. Production and Development – Paul McDade INTERIM RESULTS - 06

  15. 2007 Highlights – Exploration success will deliver next phase Exploration • World class discovery in Ghana • 7 out of 7 successful wells in Uganda • Harrison continues CMS record of success • Accelerated appraisal programmes Production and Development • Significant production growth in Africa and Asia • Managing capital allocation to UK business • Strong project delivery maintaining growth • Recent exploration success could double reserves Gearing up for major expansion • Preparing for step change in African operations • Reorganising to ensure continued focus on: • Existing portfolio • Ghana & Uganda projects • Future growth

  16. Near term potential to double Commercial Reserves Production • 1H 07 Average = 69,700 boepd (13 mmboe) • Current = 75,000 boepd • 2007 production forecast = 72-75,000 boepd Reserves • Commercial Reserves – 212 mmboe • Limited mid year review – 46% replacement • Contingent Resources – 279 mmboe • Kingfisher near-wellbore (+27 mmboe) • Kudu – 20% divestment (-29 mmboe) • Recent Ghana discoveries not included Future • Ghana discovery alone has potential to double reserves and production • Further upside potential from Uganda and Kudu appraisal and exploration programmes Substantial Resources upgrades expected at year-end Total Reserves and Resources = 491 mmboe

  17. Strong production growth from African oil interests Strong production performance • 1H production of 39,210 boepd • Forecast to average 40,000 boepd for 2007 Key assets performing well • Gabon production stable at 14,000 bopd • Ceiba and Okume performing above expectations • West Espoir development ahead of schedule • M’Boundi development focused on water injection • Mauritania redevelopment evaluation ongoing Pipeline of developments • Gabon – Ebouri development on schedule • Gabon - low equity projects Onal, Oba, Obangue, Tsiengui under way • Côte d’Ivoire - Espoir FPSO Upgrade sanctioned • Angola - Pit-Ban appraisal 2H08 • Kudu – first appraisal well underway • Uganda – early production system sanction Q407 • Ghana – appraisal focussed on early sanction

  18. Well Results to date Discovery with billion barrel potential Light, 37º API, crude with favourable GOR High quality and productive reservoir sands Fast-track appraisal under way Appraisal programme being fast-tracked Planned appraisal will deliver five wells and 3D/4D seismic by early 2008 Additional rig slots being secured for 2008 2008 programme will focus on both discovery and surrounding potential Development plans initiated Initial studies indicate large FPSO/subsea development likely Year-end dataset sufficient to initiate formal conceptual studies Ghana – Already planning for a major development Conceptual Development Plan Field Boundary Potential Gas Export WIDC 5 Tanker Oil Offloading WIDC 4 PDC 3 FPSO PDC 5 WIDC 1 PDC 4 WIDC 3 PDC 2 PDC 1 WIDC 2 Focus is on early sanction of the full field development PDC – Production Drilling Centre WIDC – Water Injection Drilling Centre

  19. Uganda – Focus to deliver first oil 2009 and exploration upside Drilling – 2 active rigs • Currently drilling Kaiso-Tonya appraisal wells • Heavy rig on site for Ngassa and Kingfisher • Light rig tender under way for 2008 programme • Offshore drilling targeted for 2H 2008 Kaiso-Tonya EPS – first oil 2009 • Appraisal drilling and 3D seismic under way • Crude analysis complete • Pre-FEED facilities, topping plant and power studies complete and tenders issued • Power transmission and road studies under way • Project sanction 4Q 2007, first oil 2009 Oil Export Project – planning ongoing • Initial scoping, refining and pipeline studies • Preparations to launch full scale oil export project upon further exploration success Deliver first oil, inventorise basin initiate full scale export project

  20. UK market environment Relatively weak gas prices Contractor environment remains tight Onerous tax regime for gas Activity outlook to sustain production Thurne onstream, Wissey on schedule and Bure North awaiting approval Kelvin first gas Dec 07 with K4 and Harrison as potential satellites subject to approval Infill potential; Hewett, Boulton, CMSIII Significant focus on managing operating costs Marginal programmes deferred with capital re-allocated to high impact projects Sustaining a strong gas business in a challenging market Sustaining production with capital allocation limited to high graded projects

  21. Production and Development Summary • Strong delivery across production assets • Pipeline of global development opportunities • Recent success will deliver step change in reserves & production • Continued investment in developing our team will ensure focus on • Operational delivery from existing portfolio • Ghana & Uganda projects • Future growth

  22. Exploration – Angus McCoss INTERIM RESULTS - 06

  23. India Suriname 5 wells 372km 2D  Uitkijk-2  Uitkijk-3  Uitkijk-4  Uitkijk-1  Uitkijk-5 UK 3 wells Ghana 2 wells  Harrison  Peveril  Acer Uganda 2 wells Namibia 1 well  Mahogany-1  Hyedua-1 Falklands Tanzania  Nzizi-2  M’Puta-3 86km CSEM 69km CSEM Mauritania Kudu-8 drilling 4,000km 2D 550KM CSEM 17km 2D 759km 2D, 326sqkm 3D 568sqkm 3D 67% global exploration success rate in 2007 to date

  24. Kudu-8 well to appraise multi-TCF potential close to completion Kudu-8 well update • Gas encountered on prognosis in primary objective • Log results to assess well productivity expected late September 2-well appraisal programme • Development options to be reviewed following the well results • Results could dramatically expand options • 300/800 MW Gas to Power • Direct Gas Export 20% Kudu equity sold to Itochu • 2 for 1 farm-in to appraisal wells • Additional payments based on reserves ultimately developed • Preferential funding terms for development • Strategic partner with significant LNG experience and funding capabilities

  25. Uganda - Leading position in the Lake Albert Rift Basin • Basin-wide strategy • Leverage knowledge and influence • Swiftly test billion barrel basin potential • Scaled development options • Hardman deal • Increases influence and materiality • 100% and operatorship of Block 2 • World-class basin potential • Seven wells : Seven successes • First oil & gas flow tested in Uganda • Highly productive reservoirs, 33º API • Challenges • Landlocked (1,300km from ocean) • Establish reserves threshold for export • Balancing long & short term goals

  26. Uganda - Preparing for commerciality in Block 2 (100%) Kaiso-Tonya area • 3D seismic – expect complete end Nov 2007 • Nzizi-2 & Mputa-3 drilled, Mputa-4 drilling • Early production sanction expected in Q4 2007 • First oil targeted for 2009 Butiaba area • 2D seismic near completion, structures identified • Light rig tender ongoing • 3+ exploration wells being prepared for 2008 Exploration of large lake structures • Significantly de-risked by Kingfisher-1 • Rig contracted to drill Ngassa-1 and Kingfisher-2 • Ngassa-1 expected to spud in October 2007 • Lake drilling solution for 2008 being evaluated • Block 2 – Ngassa & Lake • 3D seismic (Kaiso Tonya) • 1 Ngassa well (2007) • Lake survey & rig tender • Block 2 - Butiaba • 2D Seismic (2007) • 2-4 wells (2008) • Block 2 – Kaiso-Tonya • 3D (500km2) seismic • 3 onshore wells (2007) • Early Production System

  27. Uganda – Extending success into Blocks 1 & 3A (50%) Block 1 • Cooperation with Tullow operated seismic • 2D seismic ongoing, structures identified • Light rig tender ongoing • 1-2 exploration wells being prepared for 2008 Block 3A • 3D seismic acquired over Kingfisher-1 discovery • Processing started and 3D interpretation planned • Kingfisher-2 expected to spud in Q1 2008 • Pelican planned for H2 2008 • Block 1 • 2D Seismic (2007) • 1-2 wells (2008) • Block 3A • 3D/2D Seismic • Kingfisher-1 Well (2007) • Kingfisher-2 well (2008)

  28. Increasing understanding through appraisal Reservoir: distribution and quality Net Pay: upside in thin beds and weathered basement Column Height: Definition of hydrocarbon contacts Pre-appraisal model (35+ MMbo) More isolated volumes No alluvial fans Isolated channels Shoreline deposits More wells required to develop field Possible alternative model (100+ MMbo) More connected volumes Alluvial fans Channels extend to lakeshore No shoreline deposits Wells in good communication Mputa Nzizi Mputa Nzizi Kaiso Tonya geological models – 200 MMbo upside potential Pre-appraisal model Possible alternative model

  29. Building 2008 Programme Waki-1 (1938) Up-dip potential Block-1 & 2 Synergies Coordinated seismic and drilling Rig tender closing Onshore & Nearshore Accessible prospects Benign terrain Butiaba: further upside potential in Block 2 Block 2 2D Seismic Acquired in 2007 Block 2 Infill Seismic Planned Another Kaiso-Tonya? Tullow Interest – 100%

  30. 2007 – 2008 Nearshore Programme Nabors 221 Rig On-site for October spud Ngassa-1 90 day well Contingent testing Ngassa risk reduction Nzizi-2 gas Mputa-3 sands Kingfisher reservoirs / seals First step towards realizing potential of Lake Albert prospects Lake-bed coring initiated for rig tendering Drilling H2 2008 Well Trajectory Mid Secondary Objectives Shallow Secondary Objectives Deep Primary Objectives High Impact Lake Prospects: Ngassa & Kingfisher

  31. Building the business First licence signed in 1996 Production from Espoir East and West Four CDI licences signed since 2004 Three Ghana licences added in 2006 Potential shallow water developments in Ghana Exploration Mahogany discovery - June 2007 Hyedua discovery – August 2007 North Tano appraisal - September 2007 Regional exploration and appraisal campaign 2008/9 West Africa Transform Margin Exploration Campaign

  32. Play fairway extends from Ghana to Cote d’Ivoire First generation plays: Albian (Espoir / Baobab) Newly opened plays: Santonian (Mahogany / Hyedua) Frontier play potential: Campanian, Maastrichtian MAASTRICHTIAN ALBIAN Espoir Baobab CAMPANIAN SANTONIAN Mahogany Hyedua West Africa Transform Margin Plays

  33. June 07 announced Mahogany-1 discovery August 07 announced Hyedua-1 discovery 5.3 km southwest of Mahogany-1 Extends Mahogany accumulation into Deepwater Tano in down dip location (~361m total gross column) 3 appraisal wells and 910 sq km HI-RES seismic survey planned in 2007 Multiple follow-on prospects Exposure to 1.0+ BBO Ghana: World class discovery with further upside potential

  34. Objectives Determine reservoir extent Appraise up-dip attic hydrocarbons Map potential below Campanian fans Schedule Mahogany-2 – 4Q 2007 Hyedua-2 – 4Q 2007 Mahogany-3 – 1Q 2008 Major reserve potential P10: 1380 MMbo P50: 480 MMbo P90: 170 MMbo Mahogany-Hyedua Accelerated Exploratory Appraisal

  35. Pakistan 2 wells India 3+ wells Suriname 5+ wells French Guiana 1 well Gabon 3 wells Cameroon 2 wells Côte d’Ivoire 1 well Mauritania 2 wells Europe 4 wells Namibia 2 wells Uganda 5+ wells Ghana 4+ wells Tanzania 1 well Exploration programme for next 12 months

  36. Exploration programme

  37. Exploration conclusions • Exploration successes in Ghana and Uganda create step change for Tullow • Focused exploration strategy continues to prove highly effective • Key skills • Core geological plays • Well understood regions • Rigorous portfolio management and prospect ranking • Focused on growth through exploration - key component of a balanced strategy • In 2007 will spend £190 million on worldwide exploration

  38. Conclusion INTERIM RESULTS - 06

  39. Focused growth from a strong portfolio • Clear, simple, repeatable growth strategy • Balanced portfolio • High quality staff • Strong cashflow and financial management • Focus on what we know • Long term plans and a long term view Tullow is a flexible Exploration and Production business that can offer maximum value creation in changing market conditions

  40. Appendix 1 – Strategy INTERIM RESULTS - 06

  41. The Tullow Footprint Europe • ~28,000 boepd • UK gas focus • 62 blocks • 20 producing fields Africa • ~40,000 boepd • 14 countries • 53 licences • 15 producing fields Asia • ~5,000 boepd • 3 countries • 12 licences • 3 producing fields South America • 4 countries • 12 licences EUROPE Netherlands Portugal United Kingdom E E E D P AFRICA Angola Cameroon Congo (Brazzaville) Congo (DRC) Côte d’Ivoire Eq. Guinea Gabon Ghana Madagascar Mauritania Namibia Senegal Tanzania Uganda E E D P E E D P E D P E D P E E E D P D E E E D SOUTH ASIA Bangladesh India Pakistan E D P E E D P SOUTH AMERICA Falkland Isl. French Guiana Suriname Trinidad & Tobago E E E E E= Exploration D=Development P=Production

  42. Tullow’s long term growth strategy PRODUCTION and DEVELOPMENT • A track record of production growth and asset enhancement • 98% reserve replacement over the last three years • Gearing up for a major expansion in African operations EXPLORATION • Near-infrastructure and high impact exploration both delivering • Long term growth – key campaigns based on core plays and skills • Continual rejuvenation of portfolio through new ventures ACQUISITIONS and PORTFOLIO MANAGEMENT • A strong track record of deal identification, execution and integration • Focus on value rather than production targets • Consistently high-grading the portfolio

  43. Appendix 2 - Africa INTERIM RESULTS - 06

  44. Africa: developing a truly pan-African business A continent with many opportunities • Mature basins where majors are exiting • Significant areas currently unlicensed • A number of largely-unexplored basins Strong knowledge base • Over 20 years of experience in Africa • Detailed understanding of African basins • Good access to a range of opportunities Extensive portfolio • Interests in 14 countries, 54 licences and 15 producing fields • Major projects with billion barrel potential in both Ghana and Uganda • Current production of over 40,000 boepd • Continually evaluating new venture opportunities

  45. North Africa: unique acreage position Overview • Tullow has a material position in Mauritania • 9 blocks in Mauritania/Senegal • Producing Chinguetti oil field • Tiof and Tevet oil discoveries • Banda and Pelican gas discoveries • Significant exploration potential • Considerable long term exploration potential in this underexplored region Key operational highlights • 1H 2007 gross production of 16,900bopd • C-18 infill well on production in March • 3D/4D seismic acquired in March • Further infill wells planned for 2008 • Development options for Tiof and Banda under review

  46. Stable production from Gabonese assets Overview • Region where Tullow can apply its expertise in revitalising mature assets • Interests in ~40% of all licensed acreage • 12 producing fields • 5 exploration licences • Back-in rights to 10 additional licences Key Operational Highlights • Production stabilised around 14,000 bopd • Continued success from Niungo infill wells • M’Pano exploration well in Q4 • Avouma field on stream at 7,000 bopd • Ebouri development due on stream in 2008 • Recent acquisition added back-in rights to • 3 Producing fields and 1 being developed • 8 Exploration licences

  47. Equatorial Guinea Okume Drilling performance exceeding expectations Nine producers and six injectors drilled Production ahead of target ~40,000bopd 50,000bopd expected by year-end Ceiba Production enhanced by four new wells, 2 production and 2 injection Production sustained above 40,000 bopd Congo (Brazzaville) M’Boundi Development focus on water injection Nine injection wells drilled to date Well management to reduce gas flow will reduce near term oil production levels. 2007 expected to average 45,000 bopd Angola Block 1 Drilling and 3D seismic planned for 2008 West Africa: material production growth in 2007

  48. Kudu: developing upside opportunities Kudu-8 well update • Gas encountered on prognosis in primary objective • Log results to assess well productivity expected late September 2-well appraisal programme • Development options to be reviewed following the well results • Results could dramatically expand options • 300/800 MW Gas to Power • Direct Gas Export 20% Kudu equity sold to Itochu • 2 for 1 farm-in to appraisal wells • Additional payments based on reserves ultimately developed • Preferential funding terms for development • Strategic partner with significant LNG experience and funding capabilities

  49. Madagascar Leads interpreted using existing 2D seismic and new gravity / magnetic data Prospective plays tied to Manandaza–1 light oil discovery Preparing for environmental impact assessment Drilling planned for 2008/9 Tanzania and Madagascar: feeding the next campaigns Tanzania • 2D seismic acquisition in the Ruvuma Basin ongoing • Hydrocarbon systems: Msimbati / Mkindani oil seeps & Mnazi Bay gas discovery • High risk and potentially high reward leads • Drilling planned for 2008/9

  50. Appendix 3 – Europe INTERIM RESULTS - 06