Tullow Oil has cut its production outlook for the year, citing challenges at its Jubilee South East (JSE) project in Ghana.
The company reported that it now expected net production to be “marginally below” its guidance of 58,000-60,000 barrels per day of oil. It blamed challenges at JSE for delays and “reduced water injection”. Despite this, the company said it expected higher water injection rates should resolve the problem by the end of 2023.
Tullow did not provide current production volumes. In the first half of the year, its net working interest was 53,500 barrels of oil equivalent per day.
Ashley Kelty, of Panmure Gordon, noted the statement was “quite light on detail, but production appears to be falling sharply” given the guidance reduction.
Kosmos Energy, reporting earlier this month, said Jubilee production had averaged 95,900 bpd in the third quarter. This, it said, was up 32% from the previous quarter. Furthermore, gross production at Jubilee has reached 100,000 bpd, with the start up of three production wells in the third quarter.
Kosmos did note that two water injection wells had been delayed but were now online. As such, the US company reported a “slower ramp-up in Jubilee production”. For Kosmos, this delay will see one cargo that had been planned for the fourth quarter of this year deferred into early 2024.
A note from Peel Hunt said the Jubilee production would have no impact on Tullow’s lifting this year.
Bond business
Despite the production challenge, Tullow has seen its finances improving. It expects to produce $50mn more of free cash flow this year, as a result of Gabon sales and deferrals in capital expenditure. The company also recently announced a $400 million debt facility with Glencore.
Tullow has also taken steps to buy up more of its bonds that were due in 2025 and 2026. It aims to buy $300mn of the first tranche and up to $100mn in the second.
The Glencore deal provides liquidity to help Tullow pay down debt, although it comes at a high price.
“The wider refinancing continues, and while the overall cost of the debt has increased, the maturity of the debt has been extended, which takes pressure off the balance sheet in the near term,” Kelty said. “Overall debt levels remain very high, and while higher commodity prices will help FCF generation, there is little scope for growth over the longer term in the core portfolio.”
Tullow bought back $167mn of its notes in June, paying only $100mn. Standard & Poor’s cut Tullow’s rating following the purchase, downgrading the notes to CCC+, which is seen as speculative. Tullow has offered a minimum purchase price of 89.125% of the bonds’ value, via a Dutch auction.
When it bought the bonds back in June, it offered a minimum price of 55.5%.
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