Soaring oil prices contributed to a bumper 2011 for Tullow Oil, the Irish integrated oil company, but 2012 was more on the mind of investors, who marked down the shares on news of a delayed ramp-up to production at the firm's Jubilee field.
"Record revenues and cash flows from increased production and strong commodity prices combined with industry-leading exploration success underpin another very good year for Tullow in 2011," said Aidan Heavey, Chief Executive Officer of Tullow.
On the production side, group working interest production for 2011 averaged 78,200 barrels of oil equivalent per day (boepd), while sales volumes averaged 66,800 boepd.
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There was a slight fly in the ointment, however, on the Jubilee field. Gross production from the field reached 88,000 barrels of oil per day (bopd) during 2011 before declining to around 70,000 bopd at year-end, with an average production for the year of 66,000 bopd. The cause of this decline in well productivity has been identified as a technical issue related to the design of the well completions and is not expected to have any impact on field reserves and resources, Tullow said.
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Jubilee field production will ramp back up in 2012 towards the field plateau rate of 120,000 bopd as the Phase 1 remedial programme begins to take effect from January 2012 and the new Phase 1A wells are brought on stream from the second quarter; that ramp-up is later than previously indicated. Production is expected to average between 70,000 to 90,000 bopd in 2012.
Realised commodity prices during 2011 were significantly higher than the 2010 levels. Tullow's realised oil price was around $112 a barrel on a pre-hedging basis and $108 (post hedge), and the realised UK gas price was about 57p per therm (pre and post hedge).
The group's oil production sold at an average premium of approximately 1% to Brent during 2011.
Total revenue for 2011 is expected to be of the order of $2.3bn, compared with $1.1bn in 2010. The significant increase in revenue is due to higher sales volumes in 2011, principally due to sales from the Jubilee asset, together with the increased realised commodity prices.
On the down-side, Tullow expects to record an impairment charge of around $50m relating to the under performing M'Boundi field in the Congo and write-off some $135m of exploration costs, principally associated with unsuccessful 2011 exploration activities in the UK, Liberia, Gabon, Mauritania, Ghana and new ventures activity and licence relinquishments.
Countering this, at 31 December 2011, the group's commodity derivative instruments had a net positive mark to market value of $42m, exclusive of deferred premium. The movement in the mark to market position during the year has been materially driven by the group's oil hedging activity at relatively higher commodity prices throughout the year compared with the forward curve on 31 December 2011.
Capital expenditure of $1.4bn in 2011 is set to be ramped up to $2bn in 2012. Net debt at 31 December 2011 was in the region of $2.8bn.
"In 2012 we expect significant progress in Ghana and Uganda as we move forward with Jubilee well remediation and Phase 1A, TEN and the Lake Albert developments. We have an exciting exploration programme to open new basins, both onshore and offshore, and we hope to extend our reach in Africa and elsewhere along the Atlantic Margins with major new partnerships. There is much to look forward to in the year ahead," Heavey revealed.
The group said it has signed a provisional agreement with Shell to work together on a new frontier exploration in select basins and geological plays around the Atlantic Basin. Tullow and Shell will pursue and evaluate transformational geological plays in under explored frontier basins. This partnership combines the knowledge base and specialist capabilities of both companies to allow more effective de-risking and development in areas of mutual interest with the potential to deliver exceptional results.
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