Tullow Oil focuses on West Africa to generate $7bn over next decade

British oil giant Tullow Oil will focus on its core assets in West Africa as part of a plan to boost cash generation and generate $7 billion of operating cash flow over the next decade, the firm announced.

Of this, $2.7 billion will be invested back into the company, predominantly on recovering as much as possible from the oilfields in Ghana that form the backbone of its business.

The remaining $4 billion will go towards servicing its $2.4 billion of net debt and shareholder returns. There will also be a “rigorous” focus on costs, the company announced.

Its cash flow forecasts are based on oil prices of $45 per barrel in 2021 and $55 per barrel from 2022 onwards.

Tullow has been in financial trouble for years, and the energy group warned in September it could default on its debt if it did not address a potential liquidity shortfall.

David Round, analyst at BMO Capital Markets, said the cash generation outlined by Tullow was bigger than expected and “would go a long way towards addressing the market’s funding concerns” assuming it could be delivered.

However, Mark Wilson of Jefferies said his initial view was that a focus on costs “combined with mature oil-producing assets with an established track record of gradual decline cannot be turned around to medium-term production growth” as the company had set out.

Tullow’s new chief executive Rahul Dhir has his plate full after a tough 2019 that culminated in a dramatic cut to its production forecasts, the departure of predecessor Paul McDade and the suspension of the group’s dividend.

Dhir, who joined in July from rival Africa-focused oil and gas group Delonex Energy, said there had been “historic under-investment” in the company’s core assets in Ghana, where it operates the Jubilee and TEN oilfields, as the company sought to be “all things to all people”.

Tullow expects to start a multi-well drilling programme in Ghana in the second quarter of next year. It believes it has plenty of scope for further production in the country. It has produced 400m barrels of oil from an estimated 2.9bn barrels from its assets there.

The company recently sold its stake in a project in Uganda for $575m to France’s Total to help pay off debt. It has not ruled out further disposals but said “there is now less urgency to sell additional assets”.

While the focus of most of its spending will be on west Africa, Mr Dhir insisted Tullow still believed it had “opportunities to unlock value” elsewhere, in Kenya and South America that would “not require significant capital investment in the evaluation phase”.

Tullow’s production this year has averaged 75,000 barrels per day. Full-year production guidance remains unchanged at 73,000-77,000 b/d.

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