Chief Executive Aidan Heavey talked about Tullow Oil’s strategy and successes before the company revealed its 2012 half-yearly results July 25. So far this year, discoveries have opened new plays in Sierra Leone, Ghana, and Kenya.
It’s not unusual for Tullow Oil to go where others won’t tread, and the “boldness,” as Chief Executive Aidan Heavey called it, is paying off.
Coming off of a streak of industry-leading exploration success with big oil finds offshore Ghana and Uganda, the London-based company headed west to drill in French Guiana. After mapping several locations and analyzing seismic data to pinpoint a desirable target, the company tested its theory that success in West Africa’s Jubilee field, off the coast of Ghana, could be replicated in French Guiana, or Guyane.
“There weren’t many in the industry who bought into our ‘twin-basin’ theory, but it seems that our boldness and entrepreneurial spirit paid off when we discovered a substantial amount of oil at the Zaedyus well last September,” Heavey said.
The discovery brought validity to Tullow’s concept and established another new hydrocarbon basin with several nearby prospects. The basin became the fourth in a string of new oil basins found by the company in five years. These are in Ghana, Uganda, Kenya, and French Guiana. “They all have huge potential,” Heavey said.
The company’s largest ever find came in 2007 with the Jubilee field offshore Ghana, where production was around 70,000 b/d in 2011. In Uganda, Tullow has drilled more than 45 wells since 2006 with 1.1 Bbbl of oil having been discovered in the Lake Albert Rift basin.
The combined efforts have pushed Tullow’s production to record levels. And the findings keep coming – large and small. The latest, announced in July, was the detection of high-quality light oil and gas condensate in the Wawa exploration well in Ghana.
Tullow reported July 25 it achieved record revenue and profits for the first half of 2012. Profit before tax was US $829 million, up 48% compared to the first half of 2011. The company raked in $1.2 million in sales revenue, up 10% from the same reporting period last year. Production, on a working interest basis, was 77,400 boe/d, up 3%.
The company also announced a 77% exploration and appraisal success year-to-date based on 17 of 22 wells. Other highlights:
• A major discovery was made at Ngamia-1 in Kenya: 1.1 km (0.68 miles) thick gross oil-bearing interval with more than 100 m (328 ft) of net pay recorded;
• Production for the full year is forecast to average between 80,000 and 84,000 boe/d with an exit rate of over 90,000 boe/d; and
• Jubilee gross production in Ghana is expected to increase to more than 90,000 b/d by year-end.
Tullow attributed its financial performance to increased production, sustained high commodity prices, and profit on the Uganda farm-down.
“We have a very strong exploration team who are equipped with highly innovative technology [and] have vast and diverse experience and a clear geological focus,” Heavey said. “The New Ventures team is constantly surveying new territory for the best prospects. Through their scientific approach of seismic acquisition, processing, and interpretation, the teams rank the different locations by their potential, and we then tend to drill the top 10%.
“The success of our experienced exploration teams is built on a basis of openness, trust, and creativity,” Heavey said. “We also spend a considerable amount on exploration. Almost half our capital expenditure in 2011 went on exploration activities.”
Investment in South and East Africa was $196.6 million for the first half of 2012. This area has 360.3 MMboe in reserves and resources. The figure is $132.9 million total for Europe, South America, and Asia, which have combined production of 23,200 boe/d with 110.1 MMboe in reserves and resources. Investment in West and North Africa has reached $597 million this year. This area has a combined production of 54,200 boe/d with 648.1 MMboe in reserves and resources.
Morgan Stanley recently released an industry overview featuring Tullow’s Ghana exploration success.
“Given Tullow’s notable YTD exploration successes, attractive outlook, and confirmation of successful remediation efforts at the Jubilee field, we think the recent share price weakness is unjustified,” the report stated. “Kicking off with highly anticipated drilling results from Twiga (3Q) [Kenya] and Zaedyus (3/4Q) [French Guiana], we would use the recent weakness to build positions.”
The report touted Tullow’s diverse portfolio and exploration campaign, which contains “many potentially transformational wells across multiple basins.” Morgan Stanley believes the Mbawa (3Q) in Kenya , Paipai (4Q) in Kenya, and Priodontes (4Q 2012/1Q 2013) in French Guiana will attract much interest and drive shares to outperform because of their “multibillion barrel blue sky potential.”
Future growth and success will be fueled by Tullow’s commitment to an entrepreneurial approach to E&P.
“Our exploration-led growth strategy also differentiates Tullow from our peers,” Heavey said. “We explore where others don’t with a clear focus on Africa and the Atlantic margins.”
But exploration success doesn’t come without challenges.
For Tullow, the challenge is to “keep delivering the right level of growth [while] integrating our growing body of people in the right way to maintain our culture,” Heavey said. “As we continue to take on more staff on a regular basis, we must make sure we keep the culture of the business and the way we work intact.”
That means every now and again, there will evaluations and retraining, if needed.
“Also worth saying is that although we have grown rapidly, we are actually quite conservative and make sure that we do not stretch the company,” he added. “We also keep a strong balance sheet, which keeps us in a good position.
“Our strategy is to continually grow the business. There are a lot of opportunities out there for us as a dynamic but large E&P company,” Heavey said. “We can do things now that the majors cannot do. I would like to see Tullow continue to grow. There are no obstacles in our way as we see further value creation in a large number of areas.”
This year, discoveries already have been made in Sierra Leone, Ghana, and Kenya.
Contact the author, Velda Addison, at vaddison@hartenergy.com.
