Tullow plans to generate $7 billion cash flow over 10 years with focus on West African assets

Oil and gas company Tullow Oil has decided to focus on its West African producing portfolio as part of its new strategy and plan to generate c. $7 billion of operating cash flow over the next 10 years.

In an update on Wednesday, Tullow said that the plan focuses about 90 per cent of future capital expenditure on its West African producing assets.

Tullow’s new strategy and plan focuses on the substantial potential within the company’s large resource base associated with its producing assets where there is extensive infrastructure in place.

In Ghana, for example, Tullow has produced just 400 million barrels of oil (gross) from 2.9 billion barrels of oil in place (c.14 per cent). This plan, alongside a rigorous focus on costs, is expected to generate material cash flow over the next decade, which the group anticipates will enable reduction of its current debt levels, Tullow explained.

The new plan will deliver production growth in the medium term and the ability to sustain production over the longer term.

The first phase of investment will start in the second quarter of 2021 with the start of a multi-well drilling programme in Ghana.

Assuming an oil price of $45 per barrel in 2021 and $55 per barrel flat nominal from 2022 onwards, and with over 90 per cent of future capital expenditure focused on the company’s West African producing assets, Tullow forecasts it will generate c. $7 billion of operating cash flow over the next 10 years.

After the capital investment of c. $2.7 billion, there will be c.$4 billion cash flow available for debt service and shareholder returns which Tullow will initially apply towards reducing gearing to 1-2x net debt / EBITDAX while retaining appropriate liquidity.

Following the $575 million sale of its Ugandan assets, Tullow said it will continue to consider additional asset sales, provided they are value accretive and strengthen the balance sheet.

However, in light of the material cost savings that the group has realised and the cash flow generation from this new plan, there is now less urgency to sell additional assets.

Group working interest production to date in 2020 has averaged 75,000 bopd in line with expectations.

Full-year guidance remains 73,000 to 77,000 bopd, reflecting continued good performance across the portfolio.

In Suriname, the prospective Goliathberg-Voltzberg North-1 well is on schedule to spud in 1Q 2021.

Rahul Dhir, Tullow CEO, said: “Following hard work by our team, and with input from our partners and external experts, we have a clear strategy and plan for the next 10 years.

“The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base and will ensure that Tullow can meet its financial obligations and deliver material value for our host nations and investors”.