Tullow gears up for profitability boost at core assets

Company plans to pause drilling until 2025 as it prepares for new investment cycle in Ghana and Kenya. UK-based independent Tullow Oil has promised to achieve healthy cash generation this year from its operations at oil assets in Africa following lower capital spending and the expiry of some old hedges that capped the sale price of its oil well below the market.

The company said in its trading statement on Wednesday it estimates to achieve free cash flow between $200 million and $300 million in 2024 against $170 million last year, based on an assumed oil price of $80 per barrel. Tullow explained that the exact cash flow amount it aims to achieve will depend upon contractual arrangements to determine the timing of payment for 18 to 19 cargoes from Ghana that are expected to sold during the year. Better cash generation will come as Tullow and its partners plan to take a break from drilling in Ghana while the existing well stock upholds production at the Jubilee field, and the decline at the Twenboa-Enyenra-Ntomme (TEN) fields continues to be effectively minimised. Tullow has projects in Ghana and Kenya.

In its latest update, Tullow has penciled capital spending of $250 million this year, 60% of which allocated to Jubilee and 25% to non-operated assets. The capex for the year is markedly lower than the $380 million of spending in 2023. Drilling activities in Ghana are expected to resume in 2025, and the procurement process for a new rig will be started this year, the company said. Tullow’s working interest production in 2024 is expected to average between 62,000 and 68,000 barrels of oil equivalent per day, including about 7000 boepd of natural gas, the company said. Last year’s working interest production averaged 63,000 boepd, including about 6000 boepd of gas produced at Jubilee. The company said that its extensive hedging portfolio caps about 60% of forecast sales volumes at a weighted average price of $58 per barrel throughout the year. However, about 20% of sales volumes have been capped at a weighted average of $114 per barrel for the June to December period of this year, which is way above the current market price.

Tullow also anticipates material uncapped exposure to the international oil price upside from June onwards, once legacy hedges expire. UK-based Investec Bank said that Tullow’s statement “reflects a steady operational year alongside an impressive year of debt reduction and balance sheet restoration. Importantly, the company is on track to strengthen its balance sheet, will continue to ramp up its free cash flow profile with organic growth, and is well positioned to be a low debt company by 2025”.

Source: upstreamonline.com