Tullow Oil has signed a four-year drilling rig contract, heralding its return to exploration work against a backdrop of rising oil prices.
The Irish-founded company is cautiously reviving its search for new oil and gas resources in Africa and Latin America, but has warned the sector will need to walk a thin line to balance spending discipline with a desire to grow.
“What will be critical for us and the industry is to ensure we maintain margins as oil prices pick up... and not to get distracted by the higher oil prices,” said Tullow chief executive Paul McDade, who still sees uncertainty surrounding how high oil prices can go amid surging US shale production.
Crude oil prices hit new multi-year highs yesterday, as Opec-led production cuts and healthy demand helped to balance the market, but analysts warned of possible overheating. Brent crude was trading at $69.02 per barrel, 20c above its last close. Brent earlier hit $69.37, the highest since May 2015.
Tullow will use the Maersk Venturer rig to drill across its key TEN and Jubilee fields in Ghana, with drilling commencing next month.
“We are carefully looking at whether we should add some rig capacity and we will only add that if we can maintain the financial strength of the company,” said Mr McDade.
The company’s final trading update for 2017 — ahead of the publication of its annual results next month — said full-year production amounted to 94,700 barrels of oil equivalent per day, with a production range of 86,000-95,000 barrels expected this year.
Tullow said it expects to report revenues of $1.7bn and gross profit of $800m for 2017, as well as having generated $500m of free cash flow, which would be significantly ahead of forecast. Net debt was reduced by over $1.3bn during the year, with Tullow closing 2017 with total net debt of to around $3.5bn.
“Tullow delivered strong operational and financial performance in 2017 against the backdrop of continued industry volatility,” said Mr McDade.
“Over 2018, we expect to continue this positive momentum. With our diverse low-cost assets and high-graded exploration portfolio enhanced by recent licence additions in Cote d’Ivoire and Peru, we have a strong foundation to grow the business and further reduce our debt.”
Tullow has also acquired six new licences offshore of Peru. It could start some exploration there this year, or in early 2019, if it obtains local government approval.
“It is high-risk but very high-reward if it works,” said Mr McDade.
Additional reporting: Reuters