Tullow Oil plc: An Overview
1. Introduction
Tullow oil plc is a global company that deals in oil and gas production. The company is based in London. It’s listed on both the London and Irish stock exchange markets. Tullow oil plc is a part of the FTSE100 Index. The company has operations in Uganda, Ghana, South America, and South Asia.
2. Company overview
Tullow oil plc is engaged in the business of oil and gas exploration, production, and development. The company was founded in Tullow, Ireland in 1985. It has been listed on the London Stock Exchange since 2010. Tullow oil plc is a constituent of the FTSE 100 Index. As of December 31, 2018, the company had a market capitalization of GBP 5.8 billion.
The company’s business activities are organized into four segments: North Sea & Atlantic Margins; West Africa; East Africa; and New Ventures & Producing Assets. The North Sea & Atlantic Margins segment comprises the United Kingdom and Ireland operations. The West Africa segment includes operations in Ghana, Ivory Coast, Mauritania, Senegal, Sierra Leone, and Suriname. The East Africa segment covers operations in Uganda, Kenya, Tanzania, Mozambique, Ethiopia, Madagascar, and Namibia. The New Ventures & Producing Assets segment includes investments in early-stage exploration projects and producing assets in South America and South Asia.
As of December 31, 2018, Tullow Oil plc had interests in 341 licenses covering an area of approximately 577 thousand square kilometers gross (208 thousand square kilometers net). These assets are located in 19 countries including Ghana (85% interest), Uganda (100%), Ivory Coast (60%), Senegal (40%), Burkina Faso (40%), Sierra Leone (20%), Namibia (10%), Kenya (35%), Ethiopia (50%), Tanzania (16%), Mozambique (15%), Madagascar (75%), France (100%), Guyana (100%), Sri Lanka (100%), Nepal (90%), Bangladesh (50%) and Suriname (30%).
3. Financial analysis
For the year ended December 31, 2018, Tullow’s revenue increased by 3% to $2,213 million compared to $2,149 million in the previous year primarily driven by higher crude oil sales volumes from West Africa which were partially offset by lower realized prices for both crude oil and natural gas liquids (“NGLs”). Crude oil sales volumes increased by 11% to 79 thousand barrels per day (“kbpd”) from 71 kbpd in 2017 due to production from new fields coming onstream in Ghana as well as higher production from existing fields due to successful well interventions undertaken during the year. However, the realized price for Brent decreased by 18% to $71 per barrel from $87 per barrel in 2017 primarily due to lower average benchmark prices compared to the previous year as well as a weaker US dollar resulting in a 11% decrease when translated into US dollars.
Operating profit for the year was $986 million compared to an operating loss of $64 million in 2017 primarily driven by higher crude oil sales volumes as well as cost savings initiatives implemented across the business resulting in a decrease of 16% in total operating costs to $1,227 million from $1,463 million in the previous year.
Net cash from operating activities increased by $754 million to $1,503 million in 2018 compared to $749 million in 2017 primarily due to higher operating profits and a decrease in working capital. Working capital decreased by $516 million to a negative $581 million at the end of 2018 from a negative $1,097 million at the end of 2017 due to an increase in receivables and a decrease in payables.
4. Industry analysis
The oil and gas industry is highly capital intensive with large upfront investment required for exploration and production activities. The industry is also subject to volatile commodity prices which can have a significant impact on the financial performance of companies operating in the sector.
The Brent crude oil price averaged $71 per barrel in 2018, a 18% decrease from the average price of $87 per barrel in 2017. The decrease in crude oil prices was mainly due to oversupply concerns arising from increased US shale production as well as concerns about slowing global economic growth. These factors resulted in a decline in crude oil demand and put downward pressure on prices.
Natural gas prices also declined during the year due to oversupply concerns. The Henry Hub natural gas price averaged $2.74 per million British Thermal Units (“MMBtu”) in 2018, a decrease of 9% from the average price of $3.02 per MMBtu in 2017.
5. Country analysis
Tullow operates in various countries across Africa, Europe, South America, and South Asia. Most of the company’s revenue is generated from its operations in Ghana, Uganda, and Ivory Coast.
Ghana: Tullow has been operating in Ghana since 1996 and currently has a 85% interest in six offshore blocks including the Tano, Jubilee, Tweneboa-Enyenra-Ntomme (“TEN”), Deepwater Tano Cape Three Points (“DWT/CTP”), Sankofa-Gye-Nyame (“SGN”), and Orinduik blocks. As of December 31, 2018, the company had net 2P reserves of 453 mmboe and net 2C resources of 1,452 mmboe from its operations in Ghana.
Uganda: Tullow has been operating in Uganda since 2004 and currently has a 100% interest in three exploration licenses covering an area of approximately 16 thousand square kilometers gross (5 thousand square kilometers net). As of December 31, 2018, the company had net 2P reserves of 193 mmboe from its operations in Uganda.
Ivory Coast: Tullow has been operating in Ivory Coast since 2009 and currently has a 60% interest in four exploration licenses covering an area of approximately 10 thousand square kilometers gross (4 thousand square kilometers net). As of December 31, 2018, the company had net 2P reserves of 90 mmboe from its operations in Ivory Coast.
6. Conclusion
Tullow oil plc is a global company engaged in the business of oil and gas exploration, production, and development. The company has operations in various countries across Africa, Europe, South America, and South Asia. Most of the company’s revenue is generated from its operations in Ghana, Uganda, and Ivory Coast.
The oil and gas industry is highly capital intensive with large upfront investment required for exploration and production activities. The industry is also subject to volatile commodity prices which can have a significant impact on the financial performance of companies operating in the sector.
The Brent crude oil price averaged $71 per barrel in 2018, a 18% decrease from the average price of $87 per barrel in 2017. The decrease in crude oil prices was mainly due to oversupply concerns arising from increased US shale production as well as concerns about slowing global economic growth. These factors resulted in a decline in crude oil demand and put downward pressure on prices.
Natural gas prices also declined during the year due to oversupply concerns. The Henry Hub natural gas price averaged $2.74 per million British Thermal Units (“MMBtu”) in 2018, a decrease of 9% from the average price of $3.02 per MMBtu in 2017.