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Happy days ahead for Tullow Oil

The company's bottom line suffered when crude prices crashed in mid-2014, but a landmark maritime boundary resolution should lead to a welcome boost for company revenues

It's safe to say Les Wood, Tullow Oil's chief financial officer, is a relieved executive. Until late September, Tullow faced the distinct possibility that a legal case over a disputed maritime boundary between Ghana and Côte d'Ivoire might have resulted in the border neatly bisecting the company's cornerstone TEN oilfield development. That would have effectively scuppered plans to boost production, with a sizeable loss of projected revenue. This would have hindered the company's efforts to reduce its debts further.

Happily for Tullow, a meeting of the Special Chamber of the International Tribunal of the Law of the Sea in Hamburg, which provides a platform to resolve such disputes, decided to place the boundary to the west of TEN, putting all of the development firmly in Ghana.

"With the clarity of the boundary, it means we can now get back to drilling and it underpins what we are doing with the financing," Wood told Petroleum Economist in an interview at an African oil conference in Cape Town.

Wood, who joined Tullow in 2014 after 28 years at BP, took over as interim CFO in January 2017, before being appointed to the job permanently in June. He forms part of a new-look board, led by chief executive Paul McDade, previously the company's chief operating officer. He, in turn, took over from the company's founder Aidan Heavey, who is now non-executive chairman.

Wood's main task is helping to consolidate Tullow's refinancing and its refocus on core assets in Africa and South America. The company's balance sheet was hit hard by the 2014 oil price slump, which cut cashflow just as it was ploughing funds into its Ghanaian projects. A successful $0.75bn rights issue, announced in March 2017, helped steady the shipTullow said net debt had been cut by $1bn, to $3.8bn, in the first half 2017.

Now Wood's focus is on refinancing Tullow's reserve-based lending. Commitments and available credit stood at $2.6bn, following scheduled amortisation at the start of October 2017. Wood said the firm was "well on track" to getting the refinancing completed before the end of the year-and ensuring the company's slimmed-down portfolio remained viable in a lower oil price environment.

"We're certainly looking to see that the business will work at around $50 a barrelcertainly in the very short term," he said, adding that the company has over half of its production for next year hedged at about $51-52/b.

Ghana push

Tullow has drilled 11 production wells on Ghana's TEN field, and constrained output to around 40,000-50,000 barrels a day to conserve the reservoir, while waiting for the long-running boundary dispute to be resolved. The company has a 47.18% stake in TEN, where it partners with Kosmos, Anadarko, the Ghana National Petroleum Company and Petro SA.

Now armed with the requisite government approvals to push on with TEN, the company wants to drill up to 13 new wells and ramp up production to the 80,000-b/d-plus capacity of its floating production storage and offloading (FPSO) vessel on the field. The company hopes to get back to drilling at TEN around the end of 2017.

Wood has also had more good news in Ghana, with government approval of the Greater Jubilee Full Field Development Plan, which is intended to bolster reserves around the company's flagship Jubilee field. This supplies an FPSO with 120,000 b/d capacityalthough production has been affected by repairs to the FPSO's turret. Tullow has a 35.48% stake in the field, with the same partners as in TEN.

The company has given itself a degree of latitude on its level of capital expenditure over the next three years. Wood says it could be anywhere between $200m and $0.6bn, depending on the trajectory of oil prices and Tullow's cashflow.

In Kenya, the company hopes to exploit discoveries in the Lake Turkana region via a proposed export pipeline. Tullow also still has a minority stake in oilfields it discovered in Uganda, but it no longer has major spending commitments there. It also holds tracts of frontier acreage and recently acquired fresh blocks in Zambiain total it holds more than 85 licenses in 17 countries.

However, it's clear that building up lucrative existing production assets will occupy centre stage, taking precedence over more speculative exploration requiring significant upfront cash. "The first port of call for our capex will be in Ghana, because it has economic projects at [current] oil prices and there's opportunity to increase our production and cashflow," Wood said. At the time of the interview, Tullow was still deciding how best to juggle its resources to drill on both Jubilee and TEN next year.

After Ghana, Tullow's next priority will be the company's cash-generative non-operated stakes in production elsewhere in West Africa, including Equatorial Guinea, Côte d'Ivoire and Gabon, Wood added. Virtually all of Tullow's assets now lie in Africa and South America, with most of current production in which it has a stake lying in West Africa. The company estimates that its working interest in West African oil production in 2017 will be around 75,000-85,000 b/d.

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