2015 Full Year Results overview
Group performance
Tullow's 2015 financial results delivered solid revenue and pre-tax operating cash flow of $1.6 billion and $1.0 billion respectively, down on 2014, reflecting the significant fall in commodity prices over the year. Revenues and cash flow were supported by our significant hedging programme. The Group reported a loss after tax of $1.0 billion following write-downs exacerbated by lower oil prices. These included an exploration pre-tax write-off totalling $749 million, a pre-tax impairment charge of $406 million and an onerous service contract charge of $186 million as a result of much lower levels of exploration and appraisal drilling activity planned for the first half of 2016. Further details are provided in the Finance Review.
Responding to the lower oil price
A focus on lower capex, cost savings and improved efficiency has positively benefited the cash flows of the business. The Major Simplification Project commenced at the end of 2014, was completed in 2015, and is on track to deliver cash capex, opex and corporate cost savings of $0.5 billion over three years. In 2015, gross G&A was $164 million lower than the previous year. Capex reduced from $2.2 billion in 2014 to $1.7 billion in 2015 and is forecast at $1.1 billion for 2016 with work ongoing to potentially reduce this to around $0.9 billion. The 2016 capex programme comprises $0.6 billion for the TEN project, c.75% of which is to be invested in the first half of 2016 and $0.4 billion for other production and development activities. Exploration will continue to be a key part of Tullow's long-term growth strategy, however, given sustained low oil prices, capex will be around $0.1 billion in 2016. It will focus on seismic surveying, processing and interpretation, high-grading and progressing leads to drill worthy prospects and seeking low cost and highly prospective acreage in core areas to ensure that the business maintains its industry-leading exploration portfolio. As we look forward, with the capital intensive period of the TEN project behind us, the Group could, if market conditions do not improve, reduce capex to around $0.3 billion for 2017 onwards due to considerable flexibility around the timing of incremental investments.
Balance sheet and funding strategy
Tullow benefits from a diversified debt capital structure and during 2015, Tullow increased the capacity of its RBL and Corporate Facilities by $450 million. As of 31 December 2015, the Group had net debt of $4.0 billion, with facility headroom and free cash of $1.9 billion. The Group has benefited significantly from its hedging programme which contributed some $365 million, net of premiums, to the revenue of the business in 2015. The hedging programme will continue to provide future cash flow benefits and the mark-to-market value of the hedges at the end of January 2016 was $668 million. Dialogue with Tullow's syndicate of lending banks has commenced as we prepare for the redetermination of the Group's RBL in March. In October 2016, the RBL will begin to amortise and the Group expects to refinance the facility ahead of further scheduled amortisations in 2017. In addition, the Group will negotiate to extend the three year Revolving Corporate Facility ahead of April 2017. Delivery of these actions, along with reduced committed capital expenditure, further cost savings, cash flow generation and strategic portfolio management will strengthen and de-lever the balance sheet.
Strong West Africa production performance
In 2015, production across the Group was in line with expectations. West Africa working interest oil production averaged 66,600 bopd. In Europe, gas production averaged 6,800 boepd. Average working interest production guidance for 2016 from West Africa and Europe is 73,000-80,000 bopd and 5,000-7,000 boepd respectively. This includes production in the second half of 2016 from the TEN development as it gradually ramps up following first oil. In 2015, Tullow's operating costs per barrel in West Africa remained low averaging $10.0/bbl for Jubilee and $15.0 bbl across the West Africa non-operated portfolio. Tullow continues to focus on improving efficiencies and operating costs across its West Africa asset base and is working to maximise Jubilee and TEN operational synergies in Ghana where combined operating costs are expected to reduce to c.$8/bbl in 2018.
Major development projects
The TEN project in Ghana remains on track for first oil between July and August 2016. The project is over 85% complete, with many major milestones achieved including the sailaway of the FPSO from Singapore on 23 January 2016. The Greater Jubilee Full Field Development (GJFFD) Plan was submitted to the Government of Ghana in December. The plan, which intends to extend production and increase commercial reserves, has been redesigned given the current environment to reduce the overall capital requirement and allow flexibility in the timing of the investment. In East Africa, a draft Field Development Plan was submitted to the Government of Kenya in December 2015 and this will inform discussions as Tullow and its Partners progress towards potential FID of both the Kenya and Uganda upstream development projects.
Board changes, AGM and dividend
At the end of 2015, Graham Martin retired as Company Secretary and will step down as Executive Director at the AGM. Tullow's AGM will take place on 28 April 2016 at 12pm at Tullow Oil plc, Building 9, Chiswick Park, 566 Chiswick High Road, London, W4 5XT. In view of current capital allocation priorities, the Board is again recommending that no dividend is paid. At a time when Tullow is focusing on financial flexibility and cost reductions, the Board believes that Tullow and its shareholders are better served by retaining these funds in the business.
