Tullow cuts capital expenditure budget to US$1.1bn
The Tullow Oil Plc, the parent company of Tullow Oil Ghana, has reduced its 2016 budget for capital expenditure by 35 per cent to US$1.1 billion in a move that could translate into lower than anticipated investments in its Ghana operations.
The decision to trim the capital expenditure budget from US$1.7 billion in 2015, followed the continuous drop in crude oil prices, which has combined with rising cost of production to gradually take the shine off the enviable oil and gas business.
The company, however, indicated in a trading statement and operational update released on January 13, 2016 that the reduction would not affect its investments in the Tweneboah-Enyera-Ntoumme (TEN) Project in Ghana, where development works are about 80 per cent complete.
Breakdown
Last year, Tullow estimated that capital expenses in its African and European operations would close the year at US$1.9 billion, although figures released on January 13, 2016 showed that the oil giant guided its expenses downward to US$1.7 billion as of December 2015.
With crude oil prices now at US$30, down from about US$70 in 2015, the company said the 2015 outturn would not even be maintained, as the push for sustainability in the face of dampened excitement continues in the exploration and production sector.
"The group is looking at additional opportunities to reduce it further," the company said.
TEN still within budget
Despite the drop in capital expenditure, the group said the cost and timelines of the TEN Project, where Tullow was the lead operator with a 50 stake, would not be affected.
"The TEN Project continues to make excellent progress, is over 80 per cent complete, and remains within budget and on schedule for first oil between July and August 2016," it said.
"To date, all the key milestones of the project have been met, with the next important event being the sail away of the TEN FPSO from Singapore to Ghana. The vessel is expected to depart in late January 2016 and arrive in Ghana in early March when the vessel will begin to be connected to the risers and subsea infrastructure," the statement added.
Tullow expects production to average 23,000 barrels of oil per day (bopd) in 2016 from the TEN Project which is Ghana's second biggest oil project after the Jubilee Field, where production is expcted to average 101,000 barrels of oil per day (bopd) in 2016.
Should things work according to plan, the company said its average working interest in TEN for the last half of the year would average 23,000 bond.
Hedging
The statement further indicated that the company's decision to hedge its total oil production in 2015 against spot prices paid off, resulting in a pre-tax profit of US$1 billion in the face of the decline in crude oil price.
Revenue is expected to end at US$1.6 billion, according to the statement.
The 2015 earnings would be an improvement over 2014, when earnings were eroded by the dramatic rise in production costs vis-a-vis a decline in crude oil prices.
"As we look ahead to 2016, Tullow’s hedging position provides significant protection of future revenues and cash flows. The mark-to-market value at the end of December 2015 was US$623 million and Tullow will benefit in 2016 from approximately 52 per cent of entitlement oil production hedged at an average floor price of around US$75/bbl," it added. — GB