First half revenue of $759 million, gross profit of $460 million and profit after tax of $196 million
Ghana drilling programme completed safely and ahead of schedule
2024 guidance reiterated
Tullow Oil plc ("Tullow"), the independent oil and gas exploration and production group ("Group"), announces its Half Year Results for the six months ended 30 June 2024. Details of a management presentation and webcast that will be held at 9:00 BST today are available on the last page of this announcement or visit the Group's website: www.tullowoil.com
Rahul Dhir, Chief Executive Officer, Tullow Oil plc, commented today:
"During the first half of 2024, Tullow has continued to deliver strong operational and financial performance. We are pleased to report improved results across key financial metrics compared to the first half of 2023; with higher production and oil price realisations combined with lower expenditure. The Ghana drilling programme was also completed safely, and ahead of schedule.
"We were delighted to reach a major milestone by taking final investment decision (FID) of our nature-based carbon offset initiative, in partnership with the Ghana Forestry Commission. The project will deliver certified carbon offsets in line with Tullow's 2030 Net Zero target, while bringing broader positive impacts to the local community.
"We now progress into a period of lower capex in the second half of the year and beyond. We will continue to reduce debt through sustainable free cash flow generation, strengthening our balance sheet and providing optionality for investment, growth and future returns."
2024 FIRST HALF RESULTS
· First half Group working interest oil and gas production 63.7 kboepd (1H23: 60.8 kboepd).
· Revenue of $759 million (1H23: $777 million); realised oil price of $77.7/bbl after hedging (1H23: $73.3/bbl), gross profit of $460 million (1H23: $351 million); profit after tax of $196 million (1H23: $70 million).
· Capital expenditure of $157 million (1H23: $187 million) and decommissioning spend of $9 million (1H23: $44 million).
· Free cash flow1 of $(126) million (1H23: $(142) million), in line with expectations based on timing of tax payments and capital expenditure weighted toward the first half of the year.
· Net debt1 at 30 June 2024 of $1.7 billion (30 June 2023: $1.9 billion); cash gearing of 1.4x net debt/EBITDAX1 (30 June 2023: 1.7x); liquidity headroom of $0.7 billion (30 June 2023: $0.7 billion).
2024 FULL YEAR OUTLOOK
· 2024 Group working interest production is expected to be at the lower end of the Group's 62-68 kboepd range, as previously guided; driven primarily by underperformance of a single Jubilee well, which came onstream in February 2024.
· Full year capex and decommissioning guidance of c.$230 million and c.$70 million, respectively. This represents a c.$20 million capex decrease (versus previous guidance of c.$250 million) in both Ghana and Gabon.
· A significant free cash flow uplift is expected in the second half of 2024. Full year free cash flow guidance remains unchanged at $200-300 million at $80/bbl.
· Increased access to oil price upside as legacy hedges fully rolled off in May 2024; 2H 2024 average floor of $60/bbl and capped upside of $112/bbl.
· Year-end net debt guidance is unchanged at less than $1.4 billion with gearing of c.1x (net debt/EBITDAX1).
· Tullow has no uncovered debt maturities until May 2026 and continues to consider options to manage its debt maturities and optimise its capital structure.
· Outcome of arbitration in respect of Ghana Branch Profits Remittance Tax expected in the second half of 2024.
· Tullow remains focused on deleveraging and reaching net debt of less than $1 billion and cash gearing of less than 1x in the near term.
Operational update
Production
In the first six months of 2024, Group production averaged 63.7 kboepd, including 7.0 kboepd of gas. As previously disclosed, Group 2024 production is expected to be at lower end of the 62 to 68 kboepd range.
Ghana
During the first six months of the year, operational efficiency remained high, with average facility uptime across the Ghana FPSOs at 97%.
Gross oil production from the Jubilee field averaged 90.1 kbopd (net: 35.1 kbopd) in the first half of the year. This was below expectations, primarily attributable to poor performance from to the J69 producer well, which was brought onstream in February 2024. The J69 well is producing significantly less than expected due to a lack of pressure communication from water injection in this specific area. This is not being experienced elsewhere and across the field, water injection has averaged a record c.225 kbwpd. This improved rate of water injection, together with the new J70 water injection well brought onstream in June, is resulting in a good uplift in reservoir pressure which is already increasing production levels and offsetting decline. As a result, Jubilee oil production is expected to remain at similar levels to the first half and average c.90 kbopd (net: c.34 kbopd) for the full year.
Five new Jubilee wells (three producers and two water injectors) were brought onstream during the first half of 2024, bringing the current drilling programme to an end, approximately six months ahead of schedule and with no recordable safety incidents. A 4D seismic survey will be completed in early 2025 to update the view of the sub-surface, support drill candidate selection and optimise well placement ahead of a 2025/26 drilling programme.
During the drill break, work will focus on integrating the results of the previous drilling programme and optimising pressure support across the field to maximise production and minimise decline. Tullow will continue to prioritise safe and reliable operations, with a focus on cost and capital efficiency to optimise cash flow delivery.
Gross oil production from the TEN fields averaged 19.0 kbopd (net: 10.4 kbopd) in the first half of the year. The fields have exceeded expectations, with Enyenra and Ntomme wells responding positively to both injection and production optimisation. Consequently, full year gross TEN oil production guidance has been increased to c.18 kbopd (net: c.10 kbopd).
Net gas production in Ghana averaged 6.5 kboepd in the first half of the year. The interim Gas Sales Agreement remains in place until the fourth quarter of 2025 at $3.00/mmbtu with applicable indexation. Tullow is also in discussion in relation to potential third party off-take opportunities to create a significant longer-term revenue stream from gas production.
Non-operated and exploration portfolios
Production from our non-operated portfolio in Gabon and Côte d'Ivoire averaged 11.7 kboepd net in the first half of the year, in line with expectations. Full year net production remains unchanged at c.11.5 kboepd.
Tullow was deeply saddened to learn of the incident at the Perenco-operated Simba field in Gabon in March 2024, which resulted in fatalities. Production has been shut in while investigations and remediations are taking place. Production is expected to resume on the Simba field before the end of the year. Production forecasts for Gabon remain unchanged with lower Simba production being offset by improvement in other fields, including Ezanga and Echira.
In Côte d'Ivoire, Tullow continues to work with the operator of the Espoir field to establish the best way forward for the asset. Tullow continues to mature prospects on its exploration licences in Côte d'Ivoire and Argentina alongside seeking potential farm-down Partners.
Kenya
Tullow continues to work collaboratively with the Government of Kenya as they evaluate the amended Field Development Plan (FDP). The Energy and Petroleum Regulatory Authority (EPRA) has provided useful feedback and the FDP review period has been extended for a further six months to 31 December 2024. Tullow is continuing its cooperation and collaboration with the Government to reach final approval of the FDP. Discussions continue with prospective strategic partners for this project.
Reserves and resources
Tullow's review of its reserves and resources position is ongoing, incorporating 1H production as well as results and performance from the recent Ghana drill programme. Tullow will publish its 1H24 reserves report in September, in line with prior years.
Environmental, Safety and Governance (ESG)
Tullow continues to progress along its pathway to Net Zero by 2030 (Scope 1 and 2). The primary focus of the Group's Net Zero strategy is on decarbonising its operated production facilities in Ghana and Tullow continues to progress workstreams to eliminate routine flaring by the end of 2025. To address hard-to-abate residual emissions, in May 2024 Tullow took a final investment decision (FID) with the Ghana Forestry Commission to invest $90 million over 10 years, implementing a high integrity, jurisdictional based Reduced Emissions from Deforestation and Degradation (REDD+) programme that will deliver certified carbon offsets in line with Tullow's 2030 Net Zero roadmap. The programme is expected to generate up to 1 million tonnes per annum of certified carbon offsets from c.2 million hectares of land across the Bono and Bono East regions of Ghana.
Tullow is committed to being a responsible steward of the environment and ensuring robust systems are in place to manage environmental risks. These systems were deployed during two losses of primary containments in the first half of 2024 that resulted in a release of oil to the sea. These were dealt with quickly, with no major impacts, and a thorough investigation has been undertaken with actions taken to prevent any recurrence.
In June 2024, Tullow released the Noble Venturer drill ship from its contract in Ghana, which marked 1,171 days of operations, drilling 21 deep-water wells without any recordable EHS incidents.
The Group's Shared Prosperity strategy continues to focus on supporting enterprise, especially agribusiness, enhancing employability and job creation, strengthening local economies and improving living standards, through our different partnerships. In February 2024, Tullow launched the Tullow AgriVentures Programme (TAP) in partnership with Innohub Ghana. TAP has an ambition to generate approximately 600 new agriculturally linked ventures and support 30 existing businesses to grow and create more than 1,500 jobs. Tullow continues to work closely with local suppliers to drive local content and strengthen human rights due diligence through increased engagement, support, and training. In the first half of the year, Tullow received three awards at the Ghana Shippers' Authority Awards 2024, recognising the Group's commitment to local content, imports and transparency in the energy sector.
Revenue
Sales Oil Volumes
During the period, there were 51,200 boepd (1H2023: 56,900 boepd) of liftings. The decrease is mainly due to the reduction of two liftings in Gabon offset by an increase of one lifting in Ghana with 7 in Jubilee (1H 2023: 6) and 2 in TEN (1H 2023: 2).
Realised oil price ($/bbl)
The Group's realised oil price after hedging for the period was $77.7/bbl (1H 2023: $73.3/bbl) and before hedging $83.9/bbl (1H 2023: $79.7/bbl). Lower hedged volumes subject to price caps compared to 1H 2023 have resulted in a lower hedge loss despite higher oil prices, decreasing total revenue by $57.9 million in 1H 2024 (1H 2023: decrease of $65.9 million).
Gas sales
Included in Total Revenue of $759 million is gas sales of $29 million of which $25 million relates to Ghana. During the period, Jubilee exported 18,148 mmscf (gross) of gas at an average price of $2.95/mmbtu.
Cost of Sales
Underlying cash operating costs
Underlying cash operating costs amounted to $125 million; $10.8/boe (1H 2023: $136 million; $12.4/boe). The cash unit operating costs have decreased against the comparative period driven by reprioritisation and rephasing of Jubilee O&M activities in the current period and TEN shutdown preparatory costs in 1H 2023.
Depreciation, depletion, and amortisation
DD&A charges before impairment on production and development assets amounted to $198 million; $17.1 /boe (1H 2023: $163 million: $14.8/boe). This increase in DD&A is mainly attributable to increased Jubilee production and gas commercialisation offset by the impact of 2023 impairments relating to TEN.
Overlift and oil stock movements
The Group had an underlift compared to an overlift expense in the comparative period. The change was due to timing of liftings specifically in Gabon resulting in a higher oil stock position compared to the comparative period. Jubilee has had one lifting higher in the current period with oil stock position comparable to prior period as a result of increased production.
Administrative expenses
Administrative expenses of $31 million (1H 2023: $19 million) have increased against the comparative period due to prior year adjustments and accrual release in 1H 2023 of $6 million, one-off redundancy costs in 1H 2024 of $1.4 million, increase in payroll costs and phasing of spend in 1H 2024. Full year forecast administrative costs are expected to be in line with prior year despite the inflationary environment.
Asset revaluation
The asset revaluation of $39 million relates to assets disposed of as part of the swap with Perenco (refer to Note 13 for further information).
Exploration costs written off
During the first half of 2024, the Group has written off exploration costs of $3 million (1H 2023: $10 million) driven by exploration costs in Cote D'Ivoire and New Venture activities.
Impairment of property, plant and equipment
The Group recognised a net impairment reversal on PP&E of $2 million in respect of the first half of 2024 (1H 2023: Net impairment $33 million) which is mainly driven by change in decommissioning discount rates offset by changes to estimates on the cost of decommissioning for certain UK assets.
Net financing costs
Net financing costs for the period were $138 million (1H 2023: $135 million). This increase is mainly due to higher interest on obligations under leases of $17m, offset by lower interest on borrowings of $15 million due to bond buybacks in 2H 2023 and a prepayment in May 2024 resulting in a lower amount of outstanding bonds.
A reconciliation of net financing costs is included in Note 9.
Taxation
The overall adjusted net tax expense of $171 million (1H 2023: $147 million) primarily relates to tax charges in respect of the Group's production activities in West Africa, reduced by deferred tax credits associated with UK decommissioning assets, exploration write-offs and impairments. The tax charge has been calculated by applying the effective tax rate which is expected to apply to each jurisdiction for the year ending 31 December 2024.
Based on a profit before tax for the first half of the year of $368 million (1H 2023: $217 million), the effective tax rate is 46.7% (1H 2023: 67.7%). After adjusting for non-recurring amounts related to exploration write-offs, disposals, impairments and their associated deferred tax benefit, the Group's adjusted tax rate is 51.7% (1H 2023: 56.2%). In the UK there is net interest and hedging expenses of $123 million (1H 2023: $80 million), however there is no UK tax benefit as in previous periods.
The Group's future statutory effective tax rate is sensitive to the geographic mix in which pre-tax profits arise. There is no UK tax benefit from net interest and hedging expenses, whereas net interest income and hedging profits would be taxable in the UK. Consequently, the Group's tax charge will continue to vary according to the jurisdictions in which pre-tax profits occur. The group has applied the exception to recognising and disclosing information about deferred tax assets and liabilities relating to pillar two income taxes. The group's effective tax rate is more than 15% for this period and the group is not expecting profit to be taxed at less than 15%.
Adjusted EBITDAX
Adjusted EBITDAX for the year was $1,282 million (1H 2023: $1,171 million). The increase in the period was mainly driven by the oil stock movements in the current period as explained in Cost of Sales section above.
Profit for the year from continuing activities and earnings per share
The profit for the year from continuing activities amounted to $196 million (1H 2023: $70 million profit). The increase in profit after tax was driven mainly by a reduction in impairments, asset revaluation gains and provision releases. Basic earnings per share was 13.5 cents (1H 2023: 4.9 cents earnings per share).
Capital Investment
Capital expenditure amounted to $157 million (1H 2023: $187 million) with $151 million invested in production and development activities of which $108 million was invested in Jubilee mainly comprising of $96 million on drilling costs and $6 million invested in exploration and appraisal activities.
The Group's 2024 capital expenditure guidance is revised to c.$230 million which will comprise Ghana of c.$150 million, West African Non-Operated of c.$50 million, Kenya of c.$10 million and exploration spend of c.$20 million.
Decommissioning
Decommissioning expenditure was $9 million in the first half of 2024 (1H 2023: $44 million). The Group's decommissioning expenditure guidance related to decommissioning liabilities in the UK and Mauritania in 2024 is revised to $65 million as the Mauritania operated decommissioning campaign is expected to commence earlier than previously planned. This increase is offset by deferrals in Gabon, resulting in decommissioning expenditure guidance for 2024 remaining unchanged at c.$70 million net to Tullow.
Derivative financial instruments
Tullow has a material hedge portfolio in place to protect against commodity price volatility and to ensure the availability of cash flow for re-investment in capital programmes that are driving business delivery.
At 30 June 2024, Tullow's hedge portfolio provides downside protection for c.60% of forecast production entitlements in the second half of 2024 with c.$60/bbl weighted average floors across all hedging instruments; for the same period, c.24% of forecast production entitlements is capped at weighted average sold calls of c.$112/bbl. A second tier of capped upside exists through three-way collars on 15% of the total hedged volume with weighted average sold calls of $83/bbl, however, potential hedging losses on three-way collars are limited to a $10/bbl range due to the presence of purchased calls, allowing re-participation in the upside if oil prices rise above $93/bbl on a weighted average basis.
For the period from January 2025 to June 2025, Tullow's hedge portfolio provides downside protection for c.45% of forecast production entitlements with c.$59/bbl weighted average floors, while c.27% is capped though three-way collars with weighted average sold calls at c.$92/bbl and re-participation in the upside above c.$102/bbl on a weighted average basis. For the period from July 2025 to December 2025, three-way collars provide downside protection for c.10% of forecast production entitlements with c.$60/bbl weighted average floors and c.$89-$99/bbl call spreads on a weighted average basis.
All financial instruments that are initially recognised and subsequently measured at fair value have been classified in accordance with the hierarchy described in IFRS 13 Fair Value Measurement. Fair value is the amount for which the asset or liability could be exchanged in an arm's length transaction at the relevant date. Where available, fair values are determined using quoted prices in active markets (Level 1). To the extent that market prices are not available, fair values are estimated by reference to market-based transactions or using standard valuation techniques for the applicable instruments and commodities involved (Level 2).
All of the Group's derivatives are Level 2 (2023: Level 2). There were no transfers between fair value levels during the year.
At 30 June 2024, the Group's derivative instruments had a net negative fair value of $32 million (1H23: net negative $79 million).
Borrowings
On 15 May 2024, the Group made the annual prepayment of $100 million of the 2026 Notes.
The Group's total drawn debt reduced to $2.0 billion, consisting of $0.5 billion nominal value 2025 Notes, $1.4 billion nominal value 2026 Notes and $0.1 billion outstanding under a Secured Notes Facility.
Management regularly reviews options for optimising the Group's capital structure and may seek to refinance, retire or purchase any or all of its outstanding debt from time to time through new debt financings and/or cash purchases in open market purchases, privately negotiated transactions or otherwise.
Credit Ratings
Tullow maintains credit ratings with Standard & Poor's (S&P's) and Moody's Investors Service (Moody's).
Since December 2023, S&P has maintained Tullow's corporate credit rating at B- with negative outlook, and the rating of the 2026 Notes at B- and the rating of the 2025 Notes at CCC+. Similarly, Moody's has maintained Tullow's corporate credit rating at Caa1 with negative outlook, and the rating of 2026 Notes at Caa1 and the rating of the 2025 Notes at Caa2.
Underlying Operating Cash Flow and Free Cash Flow
Underlying operating cash flow amounted to $169 million (1H 2023: $188 million). Cash revenue of $97 million higher due to an additional cash lifting in the current period and impact of higher oil price, offset by $137 million higher cash taxes in the current period.
Free cash flow has increased to $(126) million (1H 2023: $(142) million) primarily due to a decrease in decommissioning spend in current period of $30 million and lower finance costs of $9 million. This is offset by the decrease in underlying operating cashflow of $19m as explained above.
Net debt increased by $127 million during the period to $1,735 million at 30 June 2024 (FY 2023: $1,608 million), consisting of $493 million Senior Notes due 2025, $1,385 million Senior Secured Notes due 2026 and $130 million outstanding under a Secured Notes Facility less cash and cash equivalents.
The Gearing ratio has decreased to 1.4 times (1H 2023:1.7 times) due to an increase in Adjusted EBITDAX as explained above primarily due to movements in oil stock in the current period.
Ghana tax assessments
A further arbitration hearing was conducted in June 2024 in respect of the assessment for Branch Profits Remittance Tax (BPRT). This claim relates to the Ghana Revenue Authority (GRA) seeking to apply BPRT under a law which the Group considers is not applicable to Tullow Ghana Limited, since it falls outside the tax regime provided for in the Petroleum Agreements and relevant double tax treaties. Tullow referred this case to international arbitration in October 2021 and a decision from the panel is expected in the second half of the year. Tullow has two further ongoing disputed tax assessments that relate to the disallowance of loan interest deductions for the fiscal years 2010 - 2020 and proceeds received by Tullow Oil plc under Tullow's corporate Business Interruption Insurance policy. Both were referred to international arbitration in 2023, with first hearings scheduled for 2025, however Tullow continues to engage with the Government of Ghana, including the GRA, with the aim of resolving the assessments on a mutually acceptable basis.
Liquidity Risk Management and Going concern
The Directors consider the going concern assessment period to be up to 31 August 2025. The Group closely monitors and manages its liquidity headroom. Cash forecasts are regularly produced, and sensitivities run for different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group's producing assets and different outcomes on ongoing disputes or litigation.
Management has applied the following oil price assumptions for the going concern assessment:
· Base Case: $82/bbl for 2024, $78/bbl for 2025; and
· Low Case: $70/bbl for 2024, $70/bbl for 2025.
The Low Case includes, amongst other downside assumptions, a 10% production decrease and 10% increased operating costs compared to the Base Case. Management has also considered additional outflows in respect of all ongoing litigations/arbitrations within the Low Case, with an additional $111 million outflow being included for the cases expected to progress in the period under assessment. The Low Case does not include the outflow for the full exposure on Ghana BPRT arbitration of $320 million (refer to note 10 Ghana tax assessments for details). The remaining arbitration cases are not expected to conclude within the going concern period and no outflows have been included in that respect.
At 30 June 2024, the Group had $0.7 billion liquidity headroom consisting of $0.2 billion free cash and $0.5 billion available under the revolving credit facility, maturing in December 2024.
The Group or its affiliates may, at any time and from time to time, seek to refinance, retire or purchase any or all of its outstanding debt through new debt financings and/or cash purchases, in open-market purchases, privately negotiated transactions or otherwise. Such refinancings or repurchases, if any, will be upon such terms and at such prices as management may determine, and will depend on prevailing market conditions, liquidity requirements and other factors.
The Group's forecasts show that the Group will be able to operate within its current debt facilities and have sufficient financial headroom for the going concern assessment period under its Base Case and Low Case. The Directors have also performed a reverse stress test to establish the average oil price throughout the going concern period required to reduce headroom to zero, that price was determined to be $20/bbl. Based on the analysis above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, they have adopted the going concern basis of accounting in preparing the half year results.
2024 principal risks and uncertainties
The Company risk profile has been closely monitored throughout the year, with consideration given to the risks to delivering the Business Plan, as well as whether external factors such as geo-political factors, global pandemics and oil price volatility have resulted in any new risks or changes to existing risks. The impact of these factors has been considered and managed across all principal risks. The directors have reviewed the principal risks and uncertainties facing the Company and concluded that for the remaining six months of the financial year are substantially unchanged from those disclosed in the 2023 Annual Report and are listed below.
1. Business plan not delivered
2. Asset integrity breach
3. Value not unlocked
4. Geopolitical risk
5. Climate change
6. Major accident event
7. Insufficient liquidity and funding capacity to sustain business
8. Capability cannot be attracted, developed or retained
9. Compliance or regulatory breach
10. Major cyber-disruption
The detailed descriptions of the principal risks and how they are being managed can be found on pages 52 to 56 in the 2023 Annual Report and Accounts.
Events since 30 June 2024
There have not been any events since 30 June 2024 that have resulted in a material impact on the interim results.
Responsibility statement
(DTR 4.2 and the Transparency (Directive 2004/109/EC) Regulations (as amended))
The Directors confirm that to the best of their knowledge:
a. the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the UK and EU, the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority (DTR) and the Transparency (Directive 2004/109/EC) Regulations 2007 as amended
b. the interim management report includes a fair review of the information required by DTR 4.2.7R and Regulation 8(2) (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and
c. the interim management report includes a true and fair review of the information required by DTR 4.2.8R and Regulation 8(3) (disclosure of related parties' transactions and changes therein).
A list of the current Directors is maintained on the Tullow Oil plc website: www.tullowoil.com.