Tullow Oil to reduce spend on exploration to €240m

Tullow Oil is to significantly redistribute its short-term capital spend levels away from exploration and more towards the development and production of its already proven assets.

The move – largely driven by falling oil prices and a number of disappointing new exploration results this year – will see the Irish-founded company spend ‘only’ around $300 million (€240m) on exploration and appraisal projects in 2015, compared to the near $1bn, or so, it shelled out in 2013 and the $600m-$800m earmarked for this year.

Brent crude prices have fallen by as much as 40% since mid summer and hit a four-year low, yesterday, of $81 per barrel.

In all, Tullow’s total capital expenditure – covering exploration, appraisal, development and production – will meet prior expectations, of around $2.1bn, next year, but its distribution will alter.

The shift will see much of those funds go towards Tullow’s core oil assets in western Africa – such as the TEN project (where $900m is set to be invested during 2015) and the Jubilee field, both off the coast of Ghana - and a reduced amount going to exploration assets, with the focus, in this regard, being in eastern Africa.

However, according to management, the east of the continent remains a key part of long-term strategy and the company is not turning away from exploration activity.

“Tullow remains exploration-led and will continue to add further high quality frontier acreage so that, as conditions allow, we can return to drilling the types of prospects that have given us the development portfolio we have today,” chief executive, Aidan Heavey said yesterday, adding that “major basin-opening potential” still remains in eastern Africa for the company.

“In light of current oil and gas sector challenges – including the commodity price environment – we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success,” he added.

Mr Heavey also noted that by 2017, Tullow expects to be producing over 100,000 barrels of high quality/margin oil per day from its producing assets in western Africa. He said that the company will continue to seek new low-cost, but highly prospective, exploration acreage in its core geographical areas to keep its industry-leading exploration position.

As part of its capital reallocation, Tullow is reviewing its investment and licensing plan for French Guiana and Mauritania.

It said that while “significant upside potential exists”, if it doesn’t allocate near-term capital to these areas, “substantial” non-cash exploration write-downs will be required for the company’s current full-year.

Yesterday’s update said that Tullow’s financial performance in the year to-date – before exploration write-offs and impairment charges – is “in line with expectations”, as is net debt, which is set to be around $3.2bn by year end. The company also said it has hedged 33,500 barrels of oil per day of its 2015 output at an average price of $90.23 per barrel, and 20,000 barrels of 2016 output at $90.83 per barrel.