Exploration can be a key driver for Tullow Oil PLC (LON:TLW) going forward, according to VSA Capital.
Analyst Edward Vaughan, in a note, highlighted that Tullow will start drilling a high-impact exploration well in Suriname later this year, and via seven separate seismic campaigns the company is advancing its portfolio of prospects.
Ian Cloke, Tullow vice president for new ventures, in this morning’s statement said the company is seeking low-cost, light oil in geologies and geographies that it knows well in Africa and South America.
Specifically, he highlighted that the company is in “an excellent position as we decide what and where to drill in 2018 and beyond, with substantial prospects in Guyana, Suriname, Mauritania and Namibia all under evaluation."
In his note, VSA’s Vaughan specifically pinpointed the seismic campaign offshore Guyana, where the company has acreage up-dip from Exxon’s giant Liza and Payara discoveries and is partnered with AIM-quoted Eco Atlantic Oil & Gas (LON:ECO).
Offshore Guyana, Tullow started seismic in May and it is expected that drilling could get underway in the Kanuku licence area as soon as the 2018/19 exploration season.
Highlighting a ‘buy’ recommendation and a 25p price target for Eco Atlantic, Vaughan noted that Tullow presently sees potential for 900 mln barrels of resources in its Guyana acreage.
Tullow boss boasts of strong performance
New Tullow chief executive Paul McDade lauded a strong performance despite challenging markets as the producer released results for the first half of the year. Specifically, McDade emphasised the group’s revenue performance with Tullow generating some US$788mln versus US$541mln in the same six months last year.
It came as production volumes averaged 81,400 barrels of oil per day in the first six months of 2017, and the company is still maintaining its current guidance range of 78,000 to 85,000 bopd for the full year.
Dramatically improved free-cashflow was also highlighted by McDade, as the company is bringing in US$205mln this year, after a US$697mln outflow in the corresponding period of 2016.
Tullow reported a US$300mln gross profit, though after impairments - mainly against properties and equipment – the oil firm chalked up a US$300mln post-tax loss for the first half.
A US$750mln rights issue substantially boosted the group’s balance sheet, supporting a debt reduction of US$1bn to US$3.8bn, and a farm-out deal in Uganda significantly reduced the group’s exposure to new capital spending obligations.
McDade, who took the hot seat in April, in a statement, said: “Despite continued challenging market conditions, Tullow performed well in the first half of 2017 delivering strong revenues and organic free cash flow.”
He added: “Since taking over as CEO, I have appointed a new and highly experienced executive team who are focused on returning Tullow to growth through financial discipline, efficient use of capital and by delivering on the potential of our diverse portfolio of low-cost production, development and exploration assets."
Remediation, production growth and exploration
Operationally, the company highlighted that the remedial work on the Jubilee Field’s turret is “making good progress” and that the work continues to be funded via insurance.
Meanwhile, it also said it is on-track to submit the development plan for the Greater Jubilee Full Field to the Ghanaian authorities.
At the same time, the company noted that production volumes at the TEN fields remain in line with expectations and additional drilling is anticipated later this year.
In terms of exploration, the group has had continued success in Kenya, with positive appraisal and exploration results. A further three wells are slated for the second half of this year, and alongside its partners, the company is advancing the project towards a final investment decision.
Elsewhere, a high impact exploration well is planned in Suriname towards the end of this year.