Tullow to generate US$7 billion cash flow over ten years

Tullow Oil has decided to focus on its West African producing portfolio in line with its new strategy and plan to generate roughly US$7 billion of operating cash flow over the next ten years.

In an update on Wednesday (25 November), Tullow said that the plan focuses approximately 90% of future capital expenditure on its West African producing assets.

Tullow’s new strategy and plan will focus on the substantial potential in the company’s large resource base associated with its producing assets where there is extensive infrastructure in place.

In Ghana, for instance, Tullow has produced just 400 million barrels of oil (gross) from 2.9 billion barrels of oil in place (approximately 14%).

This plan, alongside a rigorous focus on costs, is expected to generate material cash flow over the next decade, which the group anticipates will enable reduction of its current debt levels, Tullow explained.

New drilling

The new plan will deliver production growth in the medium term and the ability to sustain production over the longer term.

The first phase of investment will start in the second quarter of 2021 with the start of a multi-well drilling programme in Ghana.

Assuming an oil price of $45 per barrel in 2021 and $55 per barrel flat nominal from 2022 onwards, and with over 90% of future capital expenditure focused on the company’s West African producing assets, Tullow forecasts that it will generate roughly $7 billion of operating cash flow over the next ten years.

After the capital investment of about $2.7 billion, there will be approximately $4 billion cash flow available for debt service and shareholder returns, which Tullow will initially apply towards reducing gearing to 1-2x net debt/EBITDAX while retaining appropriate liquidity.

Following the $575 million sale of its Ugandan assets, Tullow said it will continue to consider additional asset sales, provided these are value-accretive and strengthen the balance sheet.

However, in the light of the material cost savings that the group has realised and the cash flow generation from this new plan, there is now less urgency to sell additional assets.

High returns

Group working interest production to date in 2020 has averaged 75,000 barrels of oil per day (bopd), in line with expectations. Full-year guidance remains 73,000 to 77,000bopd, reflecting continued good performance across the portfolio.

In Suriname, the prospective Goliathberg-Voltzberg North-1 well is on schedule to spud in the first quarter of 2021.

Rahul Dhir, Tullow’s chief executive officer, said: “Following hard work by our team, and with input from our partners and external experts, we have a clear strategy and plan for the next ten years.

“The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations and deliver material value for our host nations and investors.”

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