The 2016 half year results by Tullow Oil Plc indicate that the TEN Project is on schedule and on budget to deliver first oil in early August. TEN will increase Tullow’s group net production by c. 60% when it reaches facility capacity around the end of 2016, enabling Tullow to deleverage organically.
According to Aidan Heavey, Chief Executive, Tullow , “The start of production from the TEN field in early August will be transformational for the Group allowing us to significantly increase our net production and begin the process of deleveraging our balance sheet. This project has remained on schedule and on budget since the day the Plan of Development was signed and demonstrates our ability to deliver complex projects of this nature. The benefits of last year’s cost-cutting programme are evident in the financial results, the significant TEN capital expenditure is largely behind us and we have also made good progress on the Jubilee Turret Project. Tullow is therefore well placed to move forward with a restructured and more efficient business that can deliver growth from its portfolio of high quality, low cost producing, development and exploration assets”.
In May 2013, the Government of Ghana approved the TEN Plan of Development, Tullow’s second major operated deepwater development project. Since then, the project has remained on schedule and on budget, with first oil expected in early August.
In January 2016, the FPSO Prof. John Atta Mills left Singapore and arrived in Ghana in March where the vessel was anchored to the seabed before being connected to the risers and subsea infrastructure. The integrated facilities underwent final commissioning and testing during the second quarter of the year ahead of the start-up sequence. This involves water injection to the Enyenra reservoir, followed by oil production. This sequence will then be repeated for the Ntomme reservoir. Eight of the eleven pre-drilled wells are now completed, with the ninth to be completed this week. The total gross TEN Project capital investment to first oil is within budget at around $4 billion. Net capex expenditure to Tullow in the first half of 2016 was c.$400 million with the forecast capex in the second half of 2016 being c.$200 million as drilling completions continue through the third quarter and equipment and vessels are demobilised.
A gradual ramp-up in oil production towards the FPSO capacity of 80,000 bopd is anticipated around the end of 2016 as the facilities complete performance testing and wells are brought up to optimum flow rates. Tullow estimates that TEN average annualised production in 2016 will be around 23,000 bopd gross (net: 11,000 bopd). Drilling is not expected to resume on the TEN fields until after the resolution of the Côte d’Ivoire and Ghana border dispute through the ITLOS tribunal whose decision is expected in 2017.
The associated gas produced at TEN will be re-injected into the Ntomme reservoir gas cap until gas export begins. Gas export was planned to start 12 months after field start-up, with the Tweneboa gas reservoir coming on stream a further 12 months later. However, options to accelerate associated gas export are currently being evaluated as the fabrication of the gas export facilities is ahead of schedule and is expected to be complete in late 2016, some six months early.
Operations review Production
In the first half of 2016, Tullow’s West Africa working interest oil production averaged 51,800 bopd, impacted by lower production from the Jubilee field in Ghana, associated with the FPSO turret issue identified in February as previously guided.
An issue with the turret bearing of the Jubilee FPSO Kwame Nkrumah was identified in February 2016. This has resulted in the need to implement new operating and off take procedures, which utilise a dynamically positioned shuttle tanker and a storage vessel. These procedures necessitated the FPSO be shut down for an extended period in April with production resuming in early May. Since resuming production, these procedures have been working well and Tullow expects to continue operating the field under these new procedures for the remainder of 2016 and anticipates average gross production to be around 85,000 bopd in the second half of 2016.
As announced in June, Tullow and its Partners have established that the preferred long-term solution is to convert the FPSO to a permanently spread moored facility, with off take through a new deepwater offloading buoy.
The first phase of this work will involve the installation of a stern anchoring system to replace the three heading control tugs currently in the field. This is anticipated to be completed around the end of 2016 and will require short periods of reduced production. The second phase of work, which is awaiting approval from the Government of Ghana, will rotate the FPSO to its optimal spread moor heading and is expected to be completed in the first half of 2017. The cost for these phases is expected to be up to $150 million gross and it is estimated that the Jubilee FPSO will need to be shut-down for 8-12 weeks during the first half of 2017 to complete the second phase of work.
Upon completion of the spread mooring, the Partners will review opportunities to improve the efficiency of off take procedures by mid 2017. This should allow production to return to levels seen before the turret issue occurred.
A deep water offloading buoy is anticipated to be installed in the first half of 2018. This will remove the need for the dynamically positioned shuttle and storage tankers and the associated operating costs. Market enquiries are ongoing to estimate the cost to fabricate and install the buoy which is expected to require a shutdown of 4-6 weeks to install. The additional gross operating expenditure of the revised procedures is currently expected to be around $115 million for 2016, $105 million for 2017 and $35million for 2018.
Tullow has a comprehensive package of insurance policies in place. This includes Hull and Machinery insurance, procured on behalf of the Joint Venture, which covers relevant operating and capital costs associated with damage to the FPSO, and Business Interruption insurance for Tullow which covers consequent loss of production and revenue. Claims under both policies have been notified to our insurers. As and when the claims have been accepted, the recovery of some past losses is expected before the end of 2016 and further costs are expected to be recovered as they are incurred.
In December 2015, Tullow submitted the Greater Jubilee Full Field Development Plan to the Government of Ghana. This project, to extend field production and increase commercial reserves, was redesigned given the current oil price environment, to reduce the overall capital requirement and allow flexibility on the timing of capital investment. In light of current circumstances, approval of the Greater Jubilee Full Field Development Plan by the Government of Ghana is now expected in mid-2017.
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