TULLOW OIL PLC

Earnings Release • Jan 15, 2014

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RNS Number : 6621X

Tullow Oil PLC

15 January 2014

Tullow Oil plc - Trading Statement & Operational Update

Over 200 mmboe of Contingent Resources added in 2013

Significant oil discoveries at Amosing & Ewoi onshore Kenya

2013 Revenue of $2.6bn; strong cash flow of $1.9bn; funding sources diversified after bond issue

15 January 2014 - 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 2013. This is in advance of the Group's Full Year Results, which are scheduled for release on Wednesday 12 February 2014. The information contained herein has not been audited and may be subject to further review. In addition, Tullow has today separately announced a Kenya Operational Update.

Operational Update

Tullow's 2013 financial results are expected to deliver strong revenue and gross profit growth and operating cash flow of $1.9bn reflecting growth in production and stable oil and gas prices. Following a successful $650m debut bond issue in November 2013, Tullow's balance sheet is well-funded and the Group has unutilised debt capacity of $2.4bn.

Tullow's exploration programme added over 200 mmboe to contingent resources in 2013 through important wells in Kenya and Norway from an exploration expenditure of $1 billion. In line with Tullow's strategy, the exploration campaigns have now added an average of 200 mmboe per year to the Group's Contingent Resources over the past seven years. However, not all wells were successful and Tullow expects a net write off of approximately $405 million in relation to 2013 exploration and $325 million in relation to prior years' exploration expenditure.

In West Africa, Jubilee field production averaged approximately 100,000 bopd for 2013. The field exited 2013 with a production rate of approximately 100,000 bopd following recent issues with the FPSO's water injection system which have now been resolved. As previously disclosed, the Ghana National Gas Company's onshore gas processing plant will not be ready to receive Jubilee gas until 2H 2014. The completion of a third gas injection well in Q4 2013 brought only limited relief and further gas disposal options are being discussed with the authorities in Ghana. With resolution of these issues, Tullow estimates that Jubilee field production will average 100,000 bopd for 2014. These delays, which are not within Tullow's control, do not affect the recoverable reserves of the field. Furthermore, Tullow is confident that, once the gas processing facilities onshore are completed, the Jubilee field will be able to produce to its full potential given the field's well capacity and the strong performance of both the reservoir and the FPSO to date. In Mauritania, the Frégate-1 well is expected to reach total depth of approximately 5,800 metres by the end of January 2014.  

In East Africa, Tullow has today separately announced oil discoveries at Amosing-1 and Ewoi-1 onshore Kenya and increased discovered resources for the basin to over 600mmbo. The announcement also outlines the current ambition of the Government of Kenya and partners to reach project sanction in the period 2015/16. There have been a number of positive announcements from the Governments of Uganda and Kenya regarding joint initiatives for a crude oil pipeline to the Indian Ocean. Progress is also being made with the Government of Uganda on approval for field development plans. In Kenya and Ethiopia, Tullow will continue exploration, appraisal and testing activities in three of the ten frontier basins with some 20 exploration and appraisal wells and multiple flow tests planned over the coming 18 months.

Tullow has completed the sale of its Bangladesh assets and is awaiting Government consent to complete the sale of its Pakistan assets. As previously announced, the sale of our UK and Dutch assets is being restructured. The process for reducing Tullow's stake and capital commitments in the TEN Project is ongoing with proposals being evaluated. The TEN development project remains on track for first oil in mid-2016.

Group working interest production for 2013 averaged 84,200 boepd and production guidance for 2014 is 79,000 to 85,000 boepd. This forecast accounts for the sale of the Bangladesh assets.

COMMENTING TODAY, AIDAN HEAVEY, CHIEF EXECUTIVE SAID:

"Tullow is a stronger company at the beginning of 2014 than in January 2013. We made good progress across the business over the past year despite facing challenges within the oil and gas sector. Our operating cash flow is $1.9 billion which funds our value creating exploration campaigns. Our exploration successes in Kenya and Norway mean that Tullow is meeting its resource addition targets and expects to deliver in excess of 200 mmboe in 2014. We have an exceptional exploration portfolio and will drill over 40 wells in the next 18 months in a wide-ranging campaign. We continue to advance a pipeline of high quality development projects in West and East Africa. 2014 is full of opportunities for our business and the Board is confident that Tullow will have another strong and successful year."

Trading Statement Guidance

Guidance is provided in relation to Tullow's financial year to 31 December 2013 in advance of the Group's Full Year Results on 12 February 2014.

SALES, REVENUE AND GROSS PROFIT
		2012			2013
Working interest production (boepd)		79,200			84,200
Sales volumes (boepd)		68,000			74,400
Total revenue ($ bn)		2.34			2.60
Gross Profit ($ bn)		1.35			1.40
Note 1: Working interest production volumes do not equate to sales volumes. This is due to variations in lifting schedules and because a portion of the production is delivered to host governments under the terms of Production Sharing Contracts.
REALISED PRICES
	pre hedge				post hedge
2013 Realised oil price ($/bl)		107.8			105.3
2013 Realised UK gas price (p/therm)		66.1			65.6

COST OF SALES ADJUSTMENTS
	2013
Impairment charge ($m)	50
Underlift charge ($m)	50
Note 2: The net impairment after tax will be $25m in relation to the Thames field in the UK and is due to an increase in abandonment cost estimates. This will be shown in the income statement as a charge to cost of sales of $50m and an income tax credit of $25m.

HEDGING
		2013
Loss on Hedging Instruments ($m)		20
Note 3: The $20m charge is in relation to the changes in time value of the Group's commodity derivative instruments over the last 12 months, driven by changes in implied volatility and the movement in the forward curve during the period.
EXPLORATION WRITE OFF
	Pre-tax write off				Tax effect	Net write off
2013 activity ($m)	570.0				-165.0	405.0
Prior years activity ($m)	330.0				-5.0	325.0
2013 total exploration write off	900.0				-170.0	730.0

Note 4: During 2013 the Group spent $1.0 billion, including Norway exploration costs on a post tax cash basis, on exploration and appraisal activities, and expects to write off approximately $405 million in relation to this expenditure. In addition the Group expects to write off approximately $325 million in relation to prior years' expenditure. Therefore, the total net exploration write-offs for 2013 are expected to be approximately $730 million. This will be shown in the income statement as a $900 million exploration write-off and an income tax credit of $170 million in relation to tax received in respect of Norwegian expenditure.  These write-offs do not impact previously booked contingent resources.              

CAPITAL EXPENDITURE
		2013				2014
Capital expenditure ($m)		1,800				2,200
E&A/D&O split (%)		55/45				40/60
Note 5: Capital expenditure excludes acquisition costs and includes Norway exploration costs on a post tax cash basis
DEBT SUMMARY
	As at 31 Dec 2012				As at 31 Dec 2013
Net Debt ($m)	1,000				1,900
Headroom ($m)	2,200				2,400
Committed Bank Facilities ($m)	4,000				4,330
Corporate Bond ($m)	-				650
Note 6: On 6 November 2013 Tullow completed an offering of $650 million of 6% senior notes due in 2020. The net proceeds have been used to repay existing indebtedness under the Company's credit facilities but not cancel commitments under such facilities. Note 7: Committed bank facilities include an Exploration Finance Facility of $330m, a working capital facility relating to exploration expenditure on our Norwegian exploration licenses.

GROUP WORKING INTEREST PRODUCTION (1)

WEST & NORTH AFRICA	2013 Average (boepd)	2014 Forecast (boepd)
Ghana	34.6	35.5
Equatorial Guinea
Ceiba	3.5	2.7
Okume	6.2	6.2
Total Equatorial Guinea	9.7	8.9
Gabon
Tchatamba	3.3	4.6
Limande	2.9	3.1
Etame Complex	1.3	1.2
Other Gabon	5.8	6.7
Total Gabon	13.3	15.6
Côte d'Ivoire	3.5	2.7
Congo (Brazzaville)	2.6	2.5
Mauritania	1.4	1.1
WEST & NORTH AFRICA TOTAL	65.0	66.3
EUROPE
UK	9.2	10.7
Netherlands	5.3	4.9
Norway	0.3	0.1
EUROPE TOTAL	14.8	15.7
ASIA
Bangladesh	4.4	0.0
ASIA TOTAL	4.4	0.0
GROUP TOTAL	84.2	82.0

(1)   Includes condensate

CURRENTLY PLANNED 18 MONTH EXPLORATION AND APPRAISAL ACTIVITY

Country	Block/Licence	Prospect/Well	Interest	Spud Date
WEST & NORTH AFRICA
Gabon	Nziembou	Igongo	40%	Q2 2014
	Arouwe	Sputnik East	35%	Q2 2014
Mauritania	Block 7	Frégate (Scorpion)	36.15%	Aug-13
	C-10	Tapendar	59.15% (op)	Q1 2014
	C-6	Sidewinder	88% (op)	Q2 2014
Guinea	Guinea Offshore	Fatala	40% (op)	Q2 2014
SOUTH & EAST AFRICA
Ethiopia	Omo	Shimela	50% (op)	Q1 2014
	Omo	Gardim	50% (op)	Q2 2014
Kenya	13T	Twiga South-2	50% (op)	Q1 2014
	13T	Twiga South-3	50% (op)	Q2 2014
	13T	Ekales-2	50% (op)	Q1 2015
	13T	Ekales appraisal	50% (op)	1H 2015
	13T	Emong	50% (op)	Q1 2014
	13T	Etom	50% (op)	Q2 2014
	13T	Tausi	50% (op)	Q4 2014
	10BA	Kiboko	50% (op)	Q3 2014
	10BA	Kifaru	50% (op)	Q4 2014
	10BB	Etuko-2	50% (op)	Q1 2014
	10BB	Etuko appraisal	50% (op)	1H 2015
	10BB	Dyepa	50% (op)	Q2 2014
	10BB	Lukwa	50% (op)	Q3 2014
	10BB	Aze	50% (op)	Q4 2014
	10BB	Ekunyuk	50% (op)	Q2 2014
	10BB	Ekosowan	50% (op)	Q1 2015
	10BB	Ngamia-2	50% (op)	Q3 2014
	10BB	Ngamia appraisal	50% (op)	Q4 2014 - Q1 2015
Uganda	Various	Appraisal and testing	33%	2014
Madagascar	Block 3111	Berenty	100% (op)	H1 2015

CURRENTLY PLANNED 18 MONTH EXPLORATION AND APPRAISAL ACTIVITY

Country	Block/Licence	Prospect/Well	Interest	Spud Date
EUROPE, SOUTH AMERICA & ASIA
The Netherlands	E11	Vincent	60% (op)	Q4 2013
Norway	PL 405	Butch East	15%	Q1 2014
	PL 405	Butch SW	15%	Q1 2014
	PL 659	Langlitinden (Matrosen)	15%	Q1 2014
	PL 591	Zumba	60% (op)	1H 2015
	PL 537	Wisting Main Realgr	20%	Q2 2014
	PL 610	Durne	37.5 %	H1 2015
	PL 642	Hagar	20%	H1 2015
	PL 550	Gotama Intra Draupne	80% (op)	Q1 2014
	PL 507	Lupus	70% (op)	Q2 2014
	PL537	Wisting East North	20%	1H 2015
	PL537	Wisting East South	20%	1H 2015
Suriname	Block 47	Goliathberg/ Voltzberg South	70% (op)	Q1 2015
	Block 31	Kaimen/Sarki/Spari	30%	Q2 2015

FOR FURTHER INFORMATION CONTACT:

Tullow Oil plc (London) (+44 20 3249 9000) Chris Perry (Investor Relations) James Arnold (Investor Relations) George Cazenove (Media Relations)	Citigate Dewe Rogerson (London) (+44 207 638 9571) Martin Jackson Priscilla Garcia	Murray Consultants (Dublin) (+353 1 498 0300) Ed Micheau Joe Heron

Notes to Editors              

Tullow Oil plc

Tullow is a leading independent oil & gas, exploration and production group, quoted on the London, Irish and Ghanaian stock exchanges (symbol: TLW) and is a constituent of the FTSE 100 Index. The Group has interests in over 150 exploration and production licences across 24 countries which are managed as three regional business units: West & North Africa, South & East Africa and Europe, South America and Asia.

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