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Tullow Oil plc (Tullow), the independent oil and gas exploration and production Group, announces its half-yearly results for the six months ended 30 June 2012. Tullow had an excellent first half. The Group’s strong financial performance was mainly driven by increased production, sustained high commodity prices and the profit on the Uganda farm down. This was partially offset by increased exploration write-offs and increased costs. Industry-leading exploration and appraisal success continued, including the discovery of a fourth new oil basin in five years. A programme of acid stimulations is increasing production on the Jubilee field, offshore Ghana, and together with Phase 1A development, is expected to deliver plateau production next year. In Uganda, the completion of the farm-down has been followed by a ramp up in drilling activity and progression of the Development Plan.
Commenting, Aidan Heavey, Chief Executive, said:
“In the first half of 2012 we continued to build on the record results achieved in 2011. Our exploration-led growth strategy continues to yield an exceptional success ratio and Tullow has, with the discovery of oil onshore Kenya, opened up a fourth new basin within five years. Our balance sheet has been transformed by the Uganda farm-down and our financial strength will continue to improve through growing production, as Jubilee fulfils its potential. A strong pipeline of activity in the second half of 2012 promises another excellent year for the Group.”
Operations Review
South and East Africa
Tullow has had significant exploration success in the South and East Africa region. The Group has opened the Lake Albert Rift Basin in Uganda with the discovery of over a billion barrels of oil and is now moving into the appraisal and development phase. This year, Tullow followed its core rift basin geological play into Kenya and made a basin-opening discovery with the Ngamia-1 well. Significant upside exists in Kenya where seven separate basins and over 100 leads and prospects have been identified using seismic and gravity technologies. An accelerated exploration and appraisal campaign is now under way in both Kenya and Ethiopia. Tullow also has exploration assets in Madagascar and a gas-to-power development project in Namibia.
Uganda
Since entering the Lake Albert Rift basin in 2004 through the acquisition of Energy Africa, Tullow has drilled over 50 wells, discovered in excess of a billion barrels of oil and has steadily increased its exposure to the basin through a series of transactions. In February 2012, Tullow completed a farm-down of two thirds of its interests to CNOOC and Total, setting up an aligned partnership to develop and produce the significant discovered and potential resource base. After a hiatus of exploration and appraisal activities in 2011 drilling activities recommenced in the first half of 2012 and four rigs are now operational, with a fifth rig planned for later in the year.
Farm-down completion and development planning
In February 2012, Tullow signed two Production Sharing Agreements relating to the Lake Albert Rift Basin with the Government of Uganda, enabling the completion of the farm-down to CNOOC and Total for a total headline consideration of $2.9 billion. Operatorship of the licences has been shared between the partners with Tullow designated as operator of EA-2.
Tullow, CNOOC and Total have now completed their joint technical work to define the conceptual basin development plan. This plan is based on three main oil and gas processing centres at Buliisa, Kaiso Tonya and Kingfisher which will deliver a combined oil production rate in excess of 200,000 bopd from over 700 wells linked by extensive infield flowline infrastructure. The overall cost of this upstream development including all associated infrastructure is anticipated to be between $8 billion and $12 billion. The companies are currently studying the potential routes and design for an export pipeline, which is a critical element of the overall project. The total cost of the pipeline is anticipated to be $2.5 billion to $5 billion depending upon the route, design and throughput. The implications of Tullow’s Kenyan oil discovery are being considered as part of this work. In addition the Government of Uganda is currently preparing a plan for a local refinery, to supply petroleum products in the sub-region.
The operators have shared these development plans with Government and are now about to embark on a joint detailed review of this plan. The Government of Uganda is in the process of establishing a multi-disciplinary and cross-Ministerial Committee to oversee the review of these development plans. Following government approval of the plans, it is expected that first production will follow around 36 months later.
In March 2012, Tullow submitted field development plans for the Kaiso-Tonya area fields of Nzizi and Mputa that would permit the supply of gas and crude oil into the domestic power market ahead of a full basin development. The Government has also given its support for the sale of small quantities of crude oil, produced by well testing, to local industry.
Exploration and appraisal
In the EA-1 licence, a high-impact exploration campaign is being prepared. This will include the acquisition of seismic, gravity and geochemical data to firm up well locations ahead of a drilling campaign later in the year. An additional rig is currently being sourced for the drilling campaign which will bring the number of rigs in country to five. Highlights of this campaign will include the Omuka and Raa prospects which will be the first wells drilled to the west of the Nile.
A significant appraisal and testing campaign has also commenced in the block. This campaign will include over 20 appraisal wells, extensive well-testing and 3D seismic acquisition on the Mpyo, Gunya, Ngiri, Jobi-Rii and Jobi-East discoveries over the course of 2012 and 2013. This campaign has commenced with the drilling of the first of three wells on the Jobi-Rii field, the flow testing of Ngiri-2 at rates up to 1,200 bopd and the drilling of the first of five wells on the Ngiri field.
In the Tullow-operated EA-2 block, appraisal drilling and testing activities in the Kigogole/Nsoga/Ngege/Ngara (KNNN) area commenced in 2012 and continue on schedule. The Ngege-3, 4, 5 and 6 wells are all now complete and the Ngege-7 appraisal well is expected to be completed shortly. The successful Ngege-6 well was the first slant well drilled in Uganda and provided valuable experience for future production drilling. The Ngege appraisal wells have all encountered hydrocarbons and enabled improved delineation of this field which covers an area of approximately 50 sq km. Following Ngege-7, the rig will move to the Nsoga field where two appraisal wells are planned.
In the Kanywataba licence in the southern part of the Lake Albert Rift Basin, the Kanywataba-1 exploration well commenced drilling in May 2012 and the results of drilling, wireline logging and sampling show that the reservoir is water bearing. This wildcat well was drilled 20 km from the nearest well control on an outlier prospect. This was the last exploration well in the southern part of the basin with this exploration licence expiring in August 2012.
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