Tullow looks to unlock West Africa potential

Tullow said the new strategy would see over 90% of future capital expenditure focused on its West African assets, allowing it to generate around $7bn of operating cashflow over the next ten years, assuming an oil price of $45 per barrel in 2021, and $55 per barrel from 2022.

In particular, it will focus on assets where there is already extensive infrastructure in place. This includes its Ghanaian oil fields, where it has produced just 14% of the 2.9bn barrels of the oil in place.

Rahul Dhir, Tullow’s new chief executive, said: "Since joining Tullow in July, I have been deeply impressed by the strength of the group’s assets, especially in Ghana. We have a clear strategy and plan for the next ten years.

"The plan focuses our capital on a deep portfolio of short-cycle, high-return opportunities within our current producing asset base, and will ensure that Tullow can meets its financial obligations and deliver material value for or host nations and investors."

Oil prices collapsed at the start of 2020 as a dispute between Opec and its allies was compounded by the Covid-19 pandemic and subsequent global lockdown, which caused demand to plummet. At one stage, oil prices dipped into negative territory as rising stockpiles threatened to overwhelm storage facilities.

Prices have since recovered partially to trade around $48 per barrel, buoyed by vaccine optimism, but they remain far off the highs seen at the start of the decade.

In September, Tullow - which has net debts of $2.4bn - warned it could face possible default as its next covenant test in January 2021.

Following capital investment of around $2.7bn, Tullow said there would be around $4bn cash flow available for debt service and shareholder returns. It will also continue to consider asset sales, "provided they are value accretive and strengthen the balance sheet".

Matt Cooper, analyst at Peel Hunt, said: "Tullow’s strategy is to focus on maximising the potential of the existing West African resource base while driving down costs. This makes sense to us, given the major infrastructure capex has already been spent here.

"There is a huge prize here: we value the Ghana 2C (discovered, but undeveloped) volumes at 47-134p/sh risked-unrisked."

As at 1030 GMT, shares in Tullow were off 9% at 30.88p.