West Africa-focused Tullow Oil has reported a rise in profit for the first six months of 2024, driven by higher crude prices.
The company’s performance has been bolstered by favorable market conditions, including an OPEC+ production cut extension, escalating tensions in the Middle East, and expectations of interest rate cuts from the U.S. Federal Reserve. Tullow’s realised oil price after hedging for the period was $77.7 per barrel, compared to $73.3 per barrel last year.
For the first half of 2024, Tullow Oil’s group working interest oil and gas production stood at 63.7 thousand barrels of oil equivalent per day (kboepd), up from 60.8 kboepd in the first half of 2023. The company reported revenue of $759 million, slightly down from $777 million in the same period last year. Despite this, gross profit increased significantly to $460 million from $351 million, and profit after tax rose to $196 million from $70 million.
Capital expenditure for the period was reduced to $157 million from $187 million, while decommissioning spend dropped to $9 million from $44 million. Free cash flow remained negative at -$126 million, in line with expectations due to the timing of tax payments and capital expenditure. Net debt decreased to $1.7 billion from $1.9 billion, with cash gearing improving to 1.4x net debt/EBITDAX from 1.7x. The company’s liquidity headroom remained stable at $0.7 billion.
Operational Performance in Ghana
Tullow Oil’s operations in Ghana demonstrated high efficiency, with average facility uptime across the Ghana FPSOs at 97%. Gross oil production from the Jubilee field averaged 90.1 thousand barrels of oil per day (kbopd), with net production at 35.1 kbopd.
However, the J69 producer well, brought onstream in February 2024, underperformed due to a lack of pressure communication from water injection in that specific area. Despite this, water injection rates across the field averaged a record 225 thousand barrels of water per day (kbwpd), and the new J70 water injection well, which started in June, has improved reservoir pressure and production levels.
Five new Jubilee wells (three producers and two water injectors) were brought onstream during the first half of 2024, completing the current drilling programme six months ahead of schedule and with no safety incidents.
A 4D seismic survey will be conducted in early 2025 to update the subsurface view, support drill candidate selection, and optimize well placement for the 2025/26 drilling programme. During the drill break, Tullow will focus on integrating previous drilling results and optimizing pressure support to maximize production and minimize decline.
The TEN fields exceeded expectations, with gross oil production averaging 19.0 kbopd (net: 10.4 kbopd) in the first half of the year. The Enyenra and Ntomme wells responded positively to injection and production optimization, leading to an increase in the full-year gross TEN oil production guidance to around 18 kbopd (net: 10 kbopd). Net gas production in Ghana averaged 6.5 kboepd. The interim Gas Sales Agreement remains in place until the fourth quarter of 2025 at $3.00 per million British thermal units (mmbtu).
2024 Full-Year Outlook
Tullow Oil expects its 2024 group working interest production to be at the lower end of the previously guided 62-68 kboepd range, primarily due to the underperformance of the J69 well. Full-year capital expenditure and decommissioning guidance is around $230 million and $70 million, respectively, representing a $20 million decrease from previous guidance.
A significant free cash flow uplift is anticipated in the second half of 2024, with full-year free cash flow guidance remaining at $200-300 million at an $80/bbl oil price. Tullow has increased access to oil price upside as legacy hedges have fully rolled off, with a second half 2024 average floor of $60/bbl and capped upside of $112/bbl.
Year-end net debt guidance is unchanged at less than $1.4 billion, with gearing of approximately 1x net debt/EBITDAX. Tullow has no uncovered debt maturities until May 2026 and is exploring options to manage its debt maturities and optimize its capital structure. The outcome of arbitration regarding the Ghana Branch Profits Remittance Tax is expected in the second half of 2024. The company remains focused on deleveraging, aiming for net debt below $1 billion and cash gearing of less than 1x in the near term.
With strategic operational improvements and a clear focus on optimizing cash flow and reducing debt, Tullow is well-positioned for continued success in the latter half of the year and beyond.
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