Tullow Ghana Sees Increased Revenue

Last week British independent oil and gas explorer, Tullow Plc released its half-year (H1) results for 2013 and it was a mixture of both good and moderate news.

Its subsidiary Tullow Ghana Limited is the lead operator in Ghana’s Jubilee oil field. The parent company, which also has operations in several African countries including Ivory Coast, Uganda, Kenya and Gabon makes headline news in Ghana due to the country’s vibrant media who take an interest in the oil and gas industry.

Tullow, whose Ghana operation contributes 40 percent to the group’s total production, saw a 15% increase in revenue to $1.5billion due to higher volumes. Operating cash flow before working capital movements exceeded $1billion in the first half of 2013. Tullow group’s average production was up 14% to 88,600 barrels per day (bpd) over the same period last year.

The first six months of the year has seen reduced imports from China, a major crude oil buyer as well as reduced oil imports by the world’s biggest economy, the United States, due to its increased production from shale gas (known as fracking) production. In the light of these developments, Tullow’s results make good reading.

However not all was rosy for the London, Irish and Ghana listed firm. The groups operating profit reduced by 40% in the first half of the year whiles profit after tax fell from $834m to $500m, a reduction of 45 percent. The statement explained that the reduction was partly due to increase in operating costs. Earnings per share also fell by 40% although a dividend of 4p per share was paid to shareholders, the same as H1 2012. The Tullow statement said the financial results “were in line with market expectations”.
When Ghana began oil production in commercial quantities in 2010, production was meant to be an average of 120,000 bpd but technical challenges with some oil wells in the Jubilee field meant that actual production was in the range of 80,000-90,000. Disappointing as it was to ordinary Ghanaians and officials, it helped to lower expectations about the country’s oil find. Many observers feared that an obsession with the oil sector will make the managers of the economy to neglect the non-oil sectors like gold, manufacturing and agriculture.

After Tullow Ghana and its Jubilee partners namely Kosmos Energy, Anadarko Corporation, Ghana’s state-owned GNPC and Sabre/PetroSA were able to fix the challenges with the oil wells, production inched up to 110,000 bpd. Although this production level is modest by African standards considering neigbhour Nigeria, Africa’s largest oil producer, pumps 2million bpd, Tullow production is still significant and a major foreign exchange earner for the country.

Ghana, Africa’s second largest producer of gold and the world’s second largest producer of cocoa (main ingredient for chocolates) experienced a budget deficit of 12% by the end of 2012. This was mainly due to high pre-election spending in the lead to national elections in December last year. The target of the state finance officials is to reduce the deficit to 9% by year end 2013.

New taxes have been introduced in the first half of this year and the country floated a Eurobond on the international market which raised $1million, all in a bid to reduce the fiscal deficit.
As a result, Tullow Ghana’s H1 results and increased revenue was welcome news to managers of the economy. Specifically, Dr Henry Wampah, the governor of the Bank of Ghana, the country’s central bank and regulators of the financial industry, announced last week that Ghana’s “oil exports increased by 47.7 percent in 2013 to US$2.0 billion as a result of increased production by the Jubilee Partners”.
For the second half of the year however, production is expected to reduce to an average of 95,000 because the company is due to shut down the FPSO Kwame Nkrumah in September to fix a problem identified with a pump on the FPSO.



“A recent water injection pump failure on FPSO, which will be replaced before year-end, and a decision to extend the planned maintenance shutdown period, will however have a short-term impact on production in the second half of 2013”, the Tullow statement explained.

In May this year, the Ghana government approved a second oil field-TEN- to be operated by Tullow and its partners. The company says the overall development cost of the field is $4.9billion and oil production should start from middle of 2016. The statement said it intends to “farm down its current equity in the TEN Development and Production Area in Ghana, in return for a development carry from the TEN Project”.
Already the company has awarded a contract to Japanese firm MODEC, to build a second FPSO for the TEN oil field.

Certain actions of Tullow show its commitment to the country in the long term. A new CEO to head its Ghana operations, Charles Darku, a Ghanaian will assume office in the middle of this month, replacing Dai Jones who is heading to the firm’s headquarters in London. The listing on the Ghana’s local bourse to allow citizens to own shares is another. Additionally, news is making rounds in the local media that Tullow is in negotiations with Ghana government to upgrade and operate a shipyard in the country’s main port of Tema on a build, operate and transfer (BOT) basis.

Ghana, a middle income country that contributes 40% to Tullow’s group oil production, has a promising hydrocarbons industry, as bright as the afternoon tropical sun.
Commenting on its H1 financial results, Aidan Heavey, group CEO of Tullow, said “I am confident we are well placed for future growth and value creation.”