OIL BARREL CONFERENCE The final speaker of the day was an oilbarrel.com favourite. Tom Hickey, finance director of Tullow Oil, is a regular presenter at oilbarrel.com conferences and the company, now on the verge of joining the FTSE, has a loyal following among delegates. This is no surprise given the success of the company in recent years, with production growing from 2,500 boepd in 2000 to 75,000 boepd at the end of 2006 and on track to hit 85,000 boepd by year-end 2007. This production is made up of around 30-33,000 boepd from Europe, 39-42,000 boepd from Africa and 3-5,000 boepd from Asia.
The company really took off in 2000 when it bought a clutch of ex-BP assets in the UK’s Southern Gas Basin, proving the point of the day’s first speaker, Dr Keith Myers of Richmond Energy Partners, that many successful E&Ps start life by buying proven undeveloped or under-developed reserves at a discount price from departing oil majors. Since then the North Sea has been the engine of growth and revenue for the company but, said Hickey, the company’s enthusiasm for the province has waned in the wake of recent changes to the fiscal regime.
“High taxes, high rig prices and low gas prices are stifling activity in the Southern North Sea,” said Hickey, highlighting a tax rate of 50 per cent and rig rates of US$200,000 a day. “If, like Tullow, you have a portfolio of assets you will put the money elsewhere because the prospects will not go away.” The company has just done this, releasing a rig from its Schooner and Ketch re-development even though there is work to be done.
The re-allocation of funding from the North Sea will benefit other parts of the Tullow portfolio, particularly its African asset base. Here, Tullow has had real success in recent years, opening up a potentially world-class new oil play in Uganda and making a major oil discovery off the coast of Ghana.
In Uganda the company has drilled five wells and made five discoveries, effectively de-risking the under-explored Albertine Basin. “We reckon we have found between 100 and 250 million barrels in the wells drilled to date but we are here because we think it could be a billion barrel basin,” said Hickey. There are two main features to the company’s exploration work in the country: the more modest structures in the Kaniso and Tonya area, where there are plans for four appraisal wells in the hope of moving to first oil in 2009, and then the really large structures under Lake Albert, where the undrilled deep sections of the Kingfisher-1 well could yield half a billion barrels (although Hickey noted that its partner Heritage Oil Corp has been more upbeat in its estimates). Two deep structures will drill this year, with Ngassa-1 due to spud in September, followed by Kingfisher-2.
Tullow Oil’s Tom Hickey
If these wells come in as expected, Tullow could be sitting on a development with a pricetag of US$1 billion-plus. At this point, the company will wisely seek to bring in a partner rather than tackling a development on this scale which could overwhelm and destabilise the business.
In Ghana, Tullow has been responsible for the first major offshore discovery in the country. The Mahogany-1 well looks to have met the company’s pre-drill P50 estimate of 250 million barrels even though it has yet to reach target depth. “And the potential upside number of 600 million barrels remains valid on the work done to date,” said Hickey. “This is the largest single discovery Tullow has ever been associated with. We now need to complete the well and understand how it is distributed and its impact on other prospects on the block.”
The company also has some exciting drilling news to come from Namibia, where it expects its first result from appraisal drilling on the giant Kudu gas field this August. A commercial flow rate here could put Tullow on track for a major LNG-type project to utilise what could be a 9 tcf resource. Again, expect the company to farm down its equity to manage the costs and risks of this vast project.
There was less positive news for another frontier exploration project. Following its acquisition of Hardman Resources, Tullow has a 22 per cent stake in a vast tranche of acreage in the waters to the south and east of the Falkland Islands operated by AIM firm Falklands Oil & Gas Limited. “This is at the extreme high risk end of the portfolio and there is a decision coming at the end of this year about going into the next phase of exploration,” said the Tullow man. “If I was making that decision now we would pull out.” He tempered his comment, which will disappointed some of the FOGL followers in the audience, by noting that, as an accountant rather than a geologist, he had also missed the potential in Uganda.
It was a thoughtful presentation that went down very well with the delegates, providing plenty to whet investor appetites (particularly the exploration in Uganda and Ghana) and provide food for thought (Hickey’s comments on the North Sea regime and the prospectivity of the Falklands). The discussion continued over yet another fine oilbarrel.com lunch.
Each company’s presentation will be available to download from this report later this afternoon.
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