Tullow Oil plc: Trading statement & operational update

Tullow Oil plc (Tullow) issues this statement to summarise recent operational activities and to provide trading guidance in respect of the financial year to 31 December 2016. This is in advance of the Group’s Full Year Results, which are scheduled for release on Wednesday 8 February 2017. The information contained herein has not been audited and may be subject to further review and amendment.

This morning Tullow has also issued a release on Board changes. The Group will host a conference call for Investors and Analysts at 09:00 UK time. Details of the call can be found at the end of this statement.

COMMENTING TODAY, AIDAN HEAVEY, CHIEF EXECUTIVE OFFICER SAID:

“2016 was another tough year for the oil & gas sector and for Tullow. However, the Company showed exceptional resilience and strong operational performance to deliver TEN on time and on budget; to deal with the technical issues at Jubilee; make good progress in exploration and development in East Africa and begin the process of reducing our debt from free cash flow. Tullow is therefore now very well placed to take advantage of the opportunities that conditions in the sector offer. We took action early to deal with lower oil prices and we are now benefitting from the re-set and re-structured business that we created. Our $900 million farm-down in Uganda this week is clear evidence of the commercial attractiveness of our East African portfolio and our ability to manage our assets according to the strategic and financial needs of the business.”

OPERATIONAL UPDATE

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.

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 post-tax 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.