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Tullow flags up African glitches

One of the African oil sector's bellwethers lowers its production forecast

Shareholders convening in London in late April to approve Tullow Oil's return to dividend payments were greeted with mixed news from the company's core African operations, including reduced production in Ghana and further delays to final investment decisions (FIDs) in east Africa.

The company abandoned dividend payments after 2014, as it sought to bolster its finances during the oil sector downturn. However, with higher oil prices and more confidence over its prospects, late last year it recommended paying a final dividend of ¢4.8/share for 2018 at a cost of $67m and said it would pay out at least $100mn a year after that.

The impact of a production drop in Ghana, while unhelpful to a company getting back on its feet after some lean years, may be limited.

In a statement, Tullow blamed gas compression constraints on its Jubilee field in February and a delay in completing the Enyenra-10 production well on the Ten field for lower-than-anticipated first quarter production. This averaged 84,600bl/d of oil in terms of its working interest internationally (including production-equivalent insurance payments). Of that, some 58,500bl/d came from Ghana.

Both problems in Ghana are said to have been resolved, allowing the company to raise overall production back to around 95,000bl/d, with the prospect of boosting that further to 100,000bl/d in the second half of 2019, when extra production comes on stream from the Ten field.

However, Tullow still cut its production forecast range for the full year 2019 to 90,000-98,000bl/d from 93,000-101,000bl/d. Of this total, some 67,500-bl/d is forecast to come from Ghana. Most of the rest comes from Tullow's non-operated stakes in producing fields in Equatorial Guinea, Gabon and Cote d'Ivoire. The company also said it expected working interest gas production for the full year — from the Ten field — to average 1,000bl/d of oil equivalent (oe).

Elusive FIDs

There is no shortage of potential production upside, if two major developments in which the company is involved in Kenya and Uganda can get to the FID stage. However, the timing of both FIDs remains in doubt, despite appearing tantalisingly close.

Tullow hopes its next big development as operator will be the Lake Turkana oil development, in a remote part of northern Kenya, which would send 80,000-100,000bl/d of oil through a heated pipeline over 821km to the coast at Lamu for export from 2022.

230,000bl/d — Ugandan planned pipeline to Tanzania

However, Tullow referred to its target of taking FID of the end of 2019 as "ambitious", noting that around a third of the necessary land acquisition along the pipeline had still to be completed and that talks with the government over crucial commercial agreements were still continuing. "A late 2019 FID remains contingent on these key government of Kenya deliverables," Tullow said in a statement.

A so-called "early oil" pilot scheme to send 600bl/d from Turkana by road to Mombasa for export has now been established, following months of delays caused by protests by local communities fighting for a greater share of revenues from the project. Tullow hopes to increase production to 2,000bl/d shortly, with the first exports from Mombasa, where the oil is currently being stored, scheduled for the third quarter of 2019.

In Uganda, the Kingfisher/Tilenga export project has been held back by a tax dispute with the government over Tullow's agreed $900mn farm-down of its minority stakes in parts of the development to China's Cnooc and France's Total, the operators. The deal would leave Tullow, which pioneered Ugandan exploration, with a stake of some 10pc in the overall development.

There were hopes earlier this year that an agreement was at hand, paving the way for FID in mid-2019, but the talks are still rumbling on, pushing back the FID target to the second half of the year. "Discussions with the government and the joint venture partners are ongoing to finalise an agreement reflecting this tax treatment. These discussions are expected to conclude shortly and will enable completion of the farm-down," Tullow said.

The Ugandan project is based on estimated 2C reserves of 1.7bn bl in the Lake Albert region of western Uganda. Some 230,000bl/d are supposed to start flowing through a 1,445km heated export pipeline to Tanga on the Tanzanian coast in around 2022, although the timetable has suffered numerous delays.

Beyond Africa, Tullow is poised to embark on a three-well exploration programme in Guyana to commence in June, drilling on the Jethro and Joe prospects in the Orinduik licence, where it is operator.

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