Despite facing a tough oil market, impaired by lower oil prices, Aim-listed Tullow Oil remains positive about the year ahead, noting that the company’s hedging position provides significant protection of future revenues and cash flows.
“In 2015, Tullow not only reset its business to deal with very difficult market conditions but also delivered on its key operational goals. Strong West African oil production, supported by a significant hedge programme, delivered pre-tax operating cash flow of $1-billion,” CEO Aidan Heavey said in a statement.
The mark-to-market value at the end of December was $623-million and Tullow would benefit from about 52% of entitlement oil production hedged at an average floor price of around $75/bl on a pre-tax basis and about 64% hedged on a post-tax basis.
Meanwhile, with the ongoing development of the TEN Project, in Ghana, on track, the company expected to start production in mid-2016. This would, combined with its Jubilee oilfield, bring the company’s West Africa regional oil production to 100 000 bbl/d by 2017.
Heavey further noted that the company’s appraisal programme in Kenya proved up commercial resources with further significant upside identified.
“We continue to focus on driving down our costs and capital expenditure and, right now, Tullow has a mark-to-market hedge value of over $600-million and financial headroom of $1.9-billion. Accordingly, we have a diversified balance sheet which supports our planned activities for the year ahead,” he pointed out.
Meanwhile, Tullow’s capital expenditure (capex) associated with operating activities reduced from $1.7-billion in 2015 to $1.1-billion this year, with the group now looking at additional opportunities to reduce it further.
The total included $600-million of capex to be invested at TEN, $150-million at Jubilee, $100-million for its West Africa nonoperated assets, $150-million for East Africa predevelopment expenditure and $100-million for exploration and appraisal.
Further, despite the dip in oil prices, Tullow expected to maintain sufficient liquidity throughout the year.
“Our primary focus for the year ahead remains to deleverage the balance sheet,” the group said.