Annual Report PDF (8.0MB) - Tullow Oil plc

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Directors’ report: Business reviewChief Executive’s reviewThe next phase of growthWith world-class development assets, an extensive explorationportfolio and a strong balance sheet, the Group is exceptionallywell positioned for major production growth from 2010 onwards.“2008 was our best yearever, when unprecedentedsuccess with the drill bitmatched significant progresstowards the development oftwo major new oil provinces.”Aidan Heavey, Chief Executive OfficerRecord results and solid productionTullow has delivered record results for 2008 driven by astrong operational performance, higher oil and gas pricing,and profitable portfolio management offset by explorationwrite-offs and impairments. Whilst production decreasedas anticipated by 9% to 66,600 boepd, average pricerealisations increased by 17% for oil and by 40% for gas.Basic earnings increased by 335% to 30.9 pence per share.Our best exploration year everIn Ghana, exceptional drilling results led to a large extensionof the Jubilee field and the opening of new deepwater plays.In Uganda, we have exceeded the commercial threshold fordevelopment through a series of world-class discoveries,with more to come in this region from a strong portfolio ofhigh quality drilling prospects.Major resource potentialExceptional exploration and appraisal success with 17discoveries from 22 wells led to a 274 million barrel increasein our reserves and resources. This resulted in a revised totalof 825 million barrels of reserves and resources at year end.Our reserves replacement ratio was 582%, averaging over200% per annum for the last three years. Through ourexploration and appraisal strategy we are realising thetrue potential of our portfolio and as we continue to executesuccessful drilling campaigns, we expect to further enhanceand replenish our reserves and resources base. The Jubileefield has resource potential of up to 1.8 billion barrels of oil.This, together with the rest of the Group’s Ghanaian acreageoffers substantial upside, including the recently announcedTweneboa discovery, which adds further resource potentialof up to 1.4 billion barrels of oil equivalent.On track for Jubilee first oil in 2010Phase 1 of the Jubilee field development in Ghana is ontrack for first oil in 2010, just three years after the initialdiscovery well in 2007. Tullow, as unit operator, has selectedall major contractors and development drilling and facilitiesconstruction are under way. The Jubilee partners have allsanctioned Phase 1 development and final governmentapproval is pending resolution of the gas development plan.We have built a strong operating team in-country and willcontinue to strengthen this in 2009 to support the10 Tullow Oil plc 2008 Annual Report and Accounts
Group overview Directors’ report: Business reviewDirectors’ report: Corporate governance Financial statementsinstallation and production phases of the development.Establishing a deepwater operating capability is critical tothe success of this project and is also a key competencyrequired to pursue similar opportunities essential to delivercontinued long-term growth for Tullow.We are very clear about the large responsibility we haveto ensure that the new offshore industry in Ghana ismanaged in a sustainable and safe manner, minimisingits environmental impact and ensuring that we are goodneighbours to the local community.Commercial threshold exceeded in UgandaInvestment in two substantial drilling campaigns inUganda has resulted in material discoveries including theworld-class Buffalo-Giraffe and Kingfisher fields, whichhave discovered gross resources of approximately600 million barrels of oil. A dedicated team will now definethe optimal method to commercialise these resources.High-grading our exploration portfolioElsewhere in Côte d’Ivoire, Mauritania, the Netherlands,Portugal and South America, we continue to high-grade ourexploration portfolio by pursuing the most prospective playsas we prepare for high-impact drilling in 2010.Difficult economic climateThe current economic climate is presenting many challengesacross all sectors and within our industry. We are workingin an unprecedented credit environment and with volatileand unpredictable commodity prices. Therefore, we have tomaintain a fine balance between our short-term prioritiesand continuing to invest for long-term future growth, whilstremaining in a position to take advantage of the inevitableopportunities the current market will present.Stringent capital allocationDuring the year, we undertook a strict capital allocationprocess and identified activities that we could delay inorder to focus resources on our key projects in Ghana andUganda. Therefore, we have been particularly stringent inthe allocation of capital, to ensure that we remain financiallystrong through these turbulent times for the global economyand financial markets.As a consequence, we made a positive decision to delaysome activities into later years. This means that we willnot fully offset the natural decline in some of our UK andAfrican fields and the expected production outcome for2009 is 60,000 boepd. It is however important to recognisethat a key criterion in deciding which activities could bedeferred is to make sure we do not destroy any assetvalue by delaying infill or development activities.Planned asset managementPlanned and opportunistic asset management is a subsetof effective capital management and we continue tofundamentally review our assets and actively manageour portfolio. In 2008, we made a profit after tax of£244 million, primarily from the sale of Tullow’sTullow’s key success factorsWe believe we have developed a unique set ofcharacteristics and competencies that will helpus deliver the next phase of growth for Tullow.interest in the mature offshore Hewett fields and relatedinfrastructure, including the onshore Bacton terminal.Financial strengthThe Tullow Management and Board are fully committed toour vision of being the leading independent exploration andproduction company and building our portfolio of assets forthe longer term. Our balance sheet is strong and well funded.We secured a US$2 billion (£1.4 billion) bank facility in March2009 following a successful share placing in January 2009which raised gross proceeds of £402 million and increasedTullow’s existing share capital by 9.1%. The ability to achieveour funding requirements reflects strong banking andinvestor confidence in our business, particularly in thecontext of the current economic climate.Key focus for 2009For 2009, the Group is focused on progressing Phase 1of the Jubilee project in Ghana, fast-tracking thecommercialisation of Ugandan reserves and executingselective high-impact exploration and appraisal campaigns.The Group is in a very strong position, from an operationaland financial perspective, to deliver these exciting andtransformational projects as we move into our next phaseof growth.Aidan Heavey, Chief Executive OfficerEntrepreneurial spirit page 12Excellent execution page 24Right skills page 28Proven expertise page 36Tullow Oil plc 2008 Annual Report and Accounts 11
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