Tullow Oil plc – 2008 Full Year Results
Record results in 2008
Exciting outlook for 2009 as Tullow delivers the next phase of growth
Results summary
Tullow has maintained its outstanding exploration record and made excellent progress in developing its world-class basins in
2008 2007 Change
Sales revenue (pounds m) 692 639 +8%
Operating profit (pounds m) 300 189 +59%
Profit before tax (pounds m) 299 114 +162%
Profit after tax (pounds m) 226 53 +330%
Basic earnings per share (pence) 30.9 7.1 +335%
Final dividend per share (pence) 4.0 4.0 +0%
Operating cash flow before working capital
(pounds m) 519 474 +9%
Production (boepd, working interest basis) 66,600 73,100 -9%
Realised oil price per bbl (US$) 73.6 62.7 +17%
Realised gas price (pence per therm) 52.4 37.3 +40%
Key highlights
- Record sales revenue, cash flow and profit
- Record reserves replacement of 582%; Resource base now 825 mmboe
- Outstanding exploration performance – 17 discoveries from 22 wells
- Portfolio management post-tax profit of
244 million pounds Sterling on disposals - Exploration and impairment write off of 253 million pounds
- Major new discovery at Tweneboa in 2009 continues 100% success record in
Ghana - Jubilee development remains on track for first oil in 2H 2010
- Commercial threshold for development in
Uganda comfortably exceeded - High impact Ngassa-2 well in
Uganda to commence drilling inMarch 2009 US$2 billion bank facility secured and 402 million pounds equity placing completed in 2009
Commenting today,
“We have had our best year ever in 2008, when unprecedented success with the drill bit was matched by material progress towards the development of two major new oil provinces. We have delivered record results and significantly increased our resource base. Looking ahead, Tullow has the right people and funding in place to continue to develop our world-class assets and deliver strong and sustainable returns for shareholders. We’ve made a strong start in 2009 and it promises to be an exciting and challenging year. Overall we’re in excellent shape to deliver the Group’s next phase of growth.”
Presentation, Webcast and Conference Calls: In conjunction with these results, Tullow will conduct a presentation in
2008 Full year results overview
Record results and solid production
Tullow has delivered record results for 2008 driven by a strong operational performance, higher oil and gas pricing, and profitable portfolio management offset by exploration write offs and impairments. Whilst production decreased as anticipated by 9% to 66,600 boepd, average price realisations increased, by 17% for oil and by 40% for gas. Basic earnings increased to
On track for Jubilee first oil in 2010
Phase 1 of the Jubilee field development in
Commercial threshold exceeded in
Investment in two substantial drilling campaigns in
Best ever EHS performance
An excellent health and safety performance during 2008 is a particular highlight of the year. A Lost Time Incident Frequency Rate of 0.5 per million hours worked was achieved against the current OGP average of 0.66. This is the Group’s best EHS performance to date, despite operations taking place in increasingly challenging environments. These results reflect Tullow’s unwavering commitment to ensure the safety of our staff, contractors, partners and local communities and our determination to continuously improve our performance in this area.
Major resource potential
Exceptional exploration and appraisal success with 17 discoveries from 22 wells led to a 274 million barrel increase in our reserves and resources. This resulted in a revised total of 825 million barrels of reserves and resources at year-end. Our reserves replacement ratio was 582%, averaging over 200% per annum for the last three years. Through our exploration and appraisal strategy we are realising the true potential of our portfolio and as we continue to execute successful drilling campaigns, we expect to further enhance and replenish our reserves and resources base over the coming years.
Financially strong
Our balance sheet is strong and well funded. We secured a
Major investment in people
We continue to invest in the Tullow team and increase the capability of our organisation. As the scale and complexity of our portfolio increases we are ensuring that we are fully prepared for the next phase of growth. At the start of 2008 we employed 370 people and now have a team of 540, an increase of 46%.
2009 Outlook
Given the current economic climate these will be challenging times for the oil and gas sector but Tullow is well positioned following an outstanding year in 2008. For 2009, the Group is focused on progressing Phase 1 of the Jubilee project in
Operations Review
2008 Results highlights
Total production Total reserves and Sales revenue 2008 investment
resources
475.7 385.7
41,150 boepd 745.2 mmboe million pounds million pounds
- 2008 working interest production averaged 41,150 boepd;
- 100% success rate achieved from 15 exploration and appraisal wells in
Ghana andUganda ; - 281 mmboe of net Reserves and Resources added to African portfolio; and
- 1.8 billion barrels of gross upside potential identified through the Jubilee field appraisal programme.
In 2008, the Group focused on the Phase 1 of development of the Jubilee field, an appraisal campaign to determine ultimate field size and exploration work to establish the upside potential of the basin.
Outstanding exploration success
In
In
The substantial Teak complex is one of an inventory of prospects located in the region. Drilling is currently scheduled to commence on Teak in the fourth quarter of 2009.
Highly successful Jubilee appraisal programme
Three appraisal wells, Mahogany-2, Hyedua-2 and Mahogany-3, were drilled on the Jubilee structure during the year. Each of the wells were approximately 5km away from the original discovery well and each intersected considerable hydrocarbon columns in the Upper and Lower Mahogany sands which are both in lateral pressure communication. The Mahogany-3 well also discovered oil in a third and potentially extensive underlying sand, Mahogany Deep, which is being considered for appraisal drilling in 2009. These results led to a significant upgrade in the gross resource base for the field with the most-likely P50 case being upgraded to 1.2 billion barrels with an upside potential case of 1.8 billion barrels. It is anticipated that the initial development area has gross reserves of 490 million barrels resulting in Tullow booking its net share of 170 million barrels at year-end. Further extension of the eastern part of the Jubilee field may be targeted through an additional Mahogany exploratory appraisal well before the end of 2009.
Flow tests performed on both Mahogany-2 and Hyedua-2 confirmed that Jubilee is a highly productive and well connected reservoir and that once the wells have been configured for long-term production, they should be capable of producing at rates in excess of 20,000 barrels of 37 degree API crude oil per day.
Jubilee Phase 1 on schedule for first oil in second half of 2010
Significant progress has been made on the Phase 1 development of the Jubilee field and the project is on schedule to deliver first oil in the second half of 2010. The field has been unitised across the Deepwater Tano and West Cape Three Points blocks with Tullow named as Unit Operator. In addition a joint venture project team has been established with Kosmos Energy appointed as the Technical Operator. The Phase 1 Plan of Development has been submitted to the Ghanaian Government along with the related Unit Agreement and both are expected to be approved in the near future following final resolution of the gas development plan.
The Phase 1 development plan involves drilling a total of 17 wells, for oil production, water injection and gas injection, which will be tied back to an FPSO with a production capacity of 120,000 bopd. Sufficient rig capacity has been contracted for the development and the first dedicated development well is under way. Contractors have been selected for all major components of the project facilities and construction work has commenced. To support all offshore operations an operational organisation and associated infrastructure have been established in the city of
The partnership has also agreed, in principle, a gas development plan with the Government which will include the capability for gas re-injection and a gas export pipeline to the coast where a gas processing plant will be constructed. Jubilee will be a foundation supplier to this gas infrastructure and commercial agreements will be negotiated in 2009.
In light of continued exploration and appraisal success, the joint venture will commence work to evaluate the potential for further phases of development for the Jubilee field during 2009.
In 2008 Tullow embarked on an aggressive drilling and seismic campaign in
Exceptional exploration success
Exploration drilling activities during the year have predominantly focused on the Butiaba region of Blocks 1 and 2 where eight discoveries were made. Approximately 400 million barrels have been discovered in this region including the 300 million barrel Buffalo-Giraffe discovery which lies in the southern part of Block 1. The majority of the Butiaba discoveries have been in the prolific
Most recently, the OGEC rig drilled the Mputa-5 appraisal well in the Kaiso-Tonya region. Drilling operations completed in late February, reaching a total depth of 1,231 metres. Three separate oil bearing zones were encountered with a total net oil pay of over 12 metres. The well proved the presence of hydrocarbons in the previously un-drilled south-western flank of the field and provided the deepest oil penetration in the field to date. The well results indicate that the recently acquired 3D seismic dataset and new modelling techniques can be used to more accurately identify and map the Mputa field reservoirs and other similar reservoirs in the Lake Albert Basin.
In early 2008 an exploration campaign commenced on the shores of Lake Albert, using the Nabors 221 rig, to drill the deviated high impact Ngassa-1 well, targeting a prospect located under the lake. The primary objective was not reached due to borehole instability and the well was suspended after discovering gas in the shallower horizons. The rig then moved to the Kingfisher discovery in Block 3A where the Kingfisher-2 and Kingfisher-3 appraisal wells were drilled and Kingfisher-2 was production tested. These wells proved the lateral connectivity and high productivity of the reservoir and demonstrated the structure to be shallower and the oil-water contact to be deeper than expected. These results have upgraded the resources for Kingfisher to around 200 million barrels. The rig has now moved back to Block 2 and will commence drilling the Ngassa-2 well from a more optimal location in March.
Evaluating offshore drilling solution
To enable drilling of the significant offshore exploration prospects in Lake Albert, Tullow has initiated a Front End Engineering Design (FEED) study for an offshore drilling solution. This study has been executed jointly with Tullow’s partner, Heritage Oil, and is scheduled to be completed in the second quarter of 2009 with offshore drilling now anticipated in 2010.
Fast-track basin development
Following the exceptional exploration success, the pace at which resources have been discovered has exceeded expectations. As a consequence Tullow and the Government of
An integrated team is now in place to define the optimum development scenario for the whole basin and whilst this work is still in the early conceptual stages, it is anticipated that it will result in a phased development plan. The significant knowledge acquired from the recently completed Front End Engineering study for the previously planned Early Production System Project, which concentrated only on the development of the Mputa Field, is now being incorporated into the new plan. Early production from one or more fields will remain an integral part of the development plan. The initial phase will involve production from a small number of wells to provide early production data and crude for the local market. It is anticipated that this early production phase would then be expanded to provide more significant production volumes for the local and regional fuel oil and oil products market. The final phase is expected to involve the construction of a 1,300 km pipeline to the Indian Ocean to allow export of the resource base volumes which significantly exceed local and regional demand. It is planned to present these plans to the Government of
On the
Gross production from the Ceiba Field and the Okume Complex exceeded expectations in 2008, averaging 38,000 bopd and 70,500 bopd respectively.
An infill drilling campaign on the Ceiba Field was completed in April and flowline gas lift has been installed. On the Okume Complex, development drilling on the shallow water Elon field was completed in May while drilling on the deep water Okume and Oveng fields is expected to continue until 2010 in order to maintain plateau production. Plans for further infill drilling on the Ceiba field and accelerated Okume Complex development drilling will be evaluated during the year based on oil prices and service costs.
In 2008, production from Tullow’s
On the exploration front, existing 3D data from the Tullow operated Azobe licence is currently being reprocessed and an exploration well is planned for 2010. The operated Akoum licence expired in
Cote d’Ivoire
Gross production from the Espoir fields averaged 25,600 bopd in 2008. Development work on the West Espoir field was completed in January, with eight production and three injection wells now on line. Production is currently restricted to 22,000 boepd by the liquids and gas handling capacity on the FPSO however this figure is expected to be restored to 25,000 boepd in the fourth quarter of 2009 following completion of a facilities upgrade.
In blocks CI-103 and CI-105, 3D seismic which was processed during 2008 has delineated several Jubilee-type leads and prospects. The geophysical techniques which proved so successful in
Blocks CI-107 and CI-108 were relinquished in
During 2008 as part of an active reservoir management programme on the onshore M’Boundi field, 14 production wells and 13 injection wells were drilled and water injection capacity was increased to 46,000 bwpd. Gross production is currently over 42,000 bopd and a field redevelopment plan is being implemented with the aim of achieving over 50,000 bopd by the end of 2009. This programme includes an upgrade of the water injection capacity to 200,000 bwpd and improvements to the gas re-injection, surface processing and power generation facilities.
At the beginning of 2008 gross production from the Chinguetti field in
Two appraisal wells were drilled on the Banda discovery in
In
During 2008, possible development schemes were reviewed for the Kudu gas resources offshore
Processing of the 2D seismic dataset was completed in 2008 and two prospects have been identified in the Ruvuma basin, Sudi-1 and Mikindani-1. Tullow plans to drill its first well in
Tullow continuously reviews acreage in the Equatorial Atlantic margins of
During the year existing seismic was reprocessed and a further 600 sq km of 3D data was acquired. Further evaluation in 2009 will define the future drilling programme for offshore Block 1/06, which contains the Pitangueira and Bananeira discoveries as well as additional prospects.
Tullow completed the sale of its interest in the offshore Ngosso licence to MOL during 2008.
Outlook
Following exceptional exploration and development success in
Given the current financial climate, investment in the non-operated areas of our African portfolio is expected to reduce in 2009 resulting in a short-term reduction in production. However, greater investment in these areas during 2010 is expected to reverse any decline in production levels.
Rest of the World
2008 Results highlights
Total production Total reserves and Sales revenue 2008 investment
resources
216.0 million 94.7 million
25,450 boepd 80.2 mmboe pounds pounds
- 2008 working interest production averaged 25,470 boepd;
- Hewett-Bacton and CMS assets in UK sold for 245 million pounds;
- First gas achieved from the Wissey development in
August 2008 ; - Bangora facilities capacity upgraded to 120 mmscfd in
Bangladesh ; and - 30% interest acquired in
Georgetown block offshoreGuyana .
UK
During 2008, while Tullow benefited from a 40% rise in UK gas prices, average net UK production was down to 20,095 boepd, some 29% lower than in 2007. This reduction, which was in line with expectations, was primarily due to the predicted natural decline in mature fields and deferral of development activities.
In the Thames area, the Wissey field was successfully brought on stream in
In the Hewett area, Tullow continued to seek opportunities to extract value from these mature facilities. As part of these initiatives, the Hewett field was fully de-manned in the first half of 2008 yielding significant cost savings and a major technical study to investigate the viability of gas storage was completed. Subsequently, in
The CMS Area fields continue to produce strongly. Technical work has identified the potential to access undepleted reservoir compartments in the Ketch field by drilling further infill wells. These wells will most likely be drilled in 2010. Two infill wells are currently drilling on the Murdoch and Boulton fields and these are expected to start producing in the second and third quarters of 2009. Detailed design work has also been carried out for the Harrison development. Sanction of the project is expected in the first half of 2009 and tendering for the platform and pipeline materials is ongoing. In
Recognising the maturity and future limits in materiality to Tullow of the CMS Area, but leveraging our highly successful exploration campaigns in this region, Tullow has extended its exploration portfolio into the adjacent, relatively unexplored area of the Dutch sector. In 2008, Tullow added five blocks to its portfolio, taking the total to seven. 2009 will focus on seismic reprocessing and interpretation to refine the prospect portfolio in preparation for a drilling campaign in 2010.
Tullow has interests in three blocks in the frontier Alentejo Basin off the southwest coast of
In
Elsewhere in
During 2008 Tullow decided to restructure its
Elsewhere in
2008 was a disappointing year for Tullow in relation to its Indian operations. Three exploration wells were drilled on Block CB-ON/1 with no hydrocarbons being encountered. All three wells were plugged and abandoned. Following a critical review of the drilling programme and the remaining prospectivity in the block, Tullow has decided not to enter the next exploration period and has withdrawn from the licence. During the year, significant efforts were also made to progress Tullow’s AA-ONJ/2 licence in Assam which had originally been applied for in 1996. However at the end of the year, Tullow also took the strategic decision to withdraw from this licence and to fully withdraw from
Tullow’s drilling success in the West African Transform Margin region led to a complete re-evaluation of the deep water acreage in
In
Suriname
In Suriname, Tullow has interests in the onshore Uitkijk and Coronie blocks which lie adjacent to the Tambaredjo field, the country’s main producing heavy oil field. The 2008 drilling programme commenced in December with five shallow wells drilled in the Uitkijk licence. The results are currently being reviewed and integrated into the regional database. The Uitkijk drilling programme will be followed by a five well exploration programme on the Coronie block in early 2009.
Extensive negotiations were held in 2008 in an attempt to conclude the PSC agreements on Block 2ab and the Guayaguayare block in
Rest of the World Outlook
In
In
The Group’s South American business is looking to expand through new ventures, portfolio management, licence rounds and exploration. This activity will continue in 2009 with key exploration campaigns planned for 2010 and 2011.
Finance review
Key financial metrics 2008 2007 Change
Production (boepd, working interest
basis) 66,600 73,100 -9%
Sales volume (boepd) 55,000 62,600 -12%
Realised oil price per bbl (US$) 73.6 62.7 +17%
Realised gas price (pence per therm) 52.4 37.3 +40%
Cash operating costs per boe (pounds)(1) 5.90 5.05 +17%
Operating cash flow before working
capital per boe (pounds) 21.3 17.8 +20%
Net debt (pounds million)(2) 400 480 -16%
Interest cover (times)(3) 17.8 10.4 +7.4
Gearing (%)(4) 30 67 -37%
(1) Cash operating costs are cost of sales excluding depletion,
depreciation and amortisation and under/over lift movements
(2) Net debt is cash and cash equivalents less financial liabilities
net of unamortised arrangement fees
(3) Interest cover is earnings before interest, tax, depreciation and
amortisation charges and exploration written off divided by net
finance costs
(4) Gearing is net debt divided by net assets
Steady production and strong commodity prices
Working interest production averaged 66,600 boepd, 9% below 2007, primarily as a result of natural decline in mature fields and deferred production due to the re-allocation of capital to development projects and high impact exploration. Sales volumes averaged 55,000 boepd, representing a decrease of 12%, driven by changes in the proportion of sales arising from Production Sharing Contracts.
On average, oil prices in 2008 were significantly above 2007 levels, although they were impacted by the global economic downturn in the second half of the year. Realised oil price after hedging for 2008 was
UK gas prices in 2008 were extremely strong, returning to the exceptional levels seen in early 2006. Realised UK gas price after hedging for 2008 was 52.4p/therm (2007: 37.3p/therm), an increase of 40%. In
Higher commodity prices, partly offset by marginally lower sales volumes, meant that revenue increased by 8% to 691.7 million pounds (2007: 639.2 million pounds).
Operating costs, depreciation and impairments
Underlying cash operating costs, which exclude depletion and amortisation and movements on under/overlift, amounted to 143.9 million pounds (5.90 pounds/boe) (2007: 5.05 pounds/boe). These costs were 17% above 2007 levels, principally due to upward pressures in oil and gas services costs and an increase in Gabonese royalty payments which are directly linked to oil prices.
Depreciation, depletion and amortisation charges before impairment charges for the period amounted to 198.4 million pounds (8.14 pounds/boe) (2007: 7.61 pounds/boe). We have also recognised a further impairment charge of 26.3 million pounds (1.08 pounds/boe) (2007: 0.48 pounds/boe) in respect of the Chinguetti field in
Administrative expenses of 43.1 million pounds (2007: 31.6 million pounds) include an amount of 7.9 million pounds (2007: 5.4 million pounds) associated with IFRS 2 – Share-based payments. The increase in total general and administrative costs is also due to the increase in the scale of our operations. In 2008, staff numbers increased by 46% to 540 people.
Exploration write-off and asset value reduction
Exploration write-offs associated with unsuccessful 2008 exploration activities in the UK,
The Group has decided to primarily focus on fast tracking its world class discoveries in
Tullow’s total exploration write-off and asset value reduction for 2008 is therefore 226.7 million pounds (2007: 64.2 million pounds).
Operating profit
Operating profit amounted to 299.7 million pounds (2007: 189.0 million pounds), an increase of 59%, principally due to the higher commodity prices realised during the period, profits of 243.9 million pounds in relation to portfolio management activities offset by exploration costs written off of 226.7 million pounds.
Derivative instruments
Tullow continues to undertake hedging activities as part of the ongoing management of its business risk and to protect the availability of cash flow for reinvestment in capital programmes that are driving business growth.
At
While all of the Group’s commodity derivative instruments currently qualify for hedge accounting, a credit of 42.9 million pounds (2007: charge of 29.3 million pounds) has been recognised in the income statement for 2008. This credit largely reflects the change in fair values of the Group’s hedging instruments attributable to time value and implied volatility and value being conferred to Tullow by the hedge counterparties.
The Group’s hedge position as at
Hedge position 2009 2010 2011
Oil
Volume - bopd 14,958 7,500 1,500
Current Price Hedge - US$/bbl 59.21 74.69 63.89
Gas Hedges
Volume - mmscfd 56.7 17.8 3.7
Current Price Hedge - p/therm 54.32 53.01 58.86
Gearing, financing costs and interest cover
The net interest charge for the period was 43.2 million pounds (2007: 45.6 million pounds) and reflects the reduction in net debt levels during 2008 due to improved operating cash flow and the completion of portfolio management transactions, partially offset by increased capital expenditure.
At
Portfolio management
During 2008, Tullow completed the disposal of a number of non-core assets for proceeds of 285.4 million pounds, with an overall profit on disposal after tax of 243.9 million pounds. In
In
Taxation
The tax charge of 73.1 million pounds (2007: 61.6 million pounds) relates to the Group’s North Sea,
Dividend
Due to the requirement for major capital investment during 2009, particularly in
Record levels of operating cash flow and focused capital investment
Increased commodity prices led to record operating cash flows before working capital movements of 518.8 million pounds (2007: 473.8 million pounds), 9% ahead of 2007. This cash flow facilitated 2008 capital investment of 460.4 million pounds in exploration and development activities, payment of dividends, servicing of debt facilities and a reduction of over 60 million pounds in net debt.
Tullow is currently budgeting for a total 2009 capital expenditure of approximately 600 million pounds (2008: 480 million pounds). Investment in 2009 will be split 70% on production and development and the remainder on exploration and appraisal. Tullow’s activities in
Balance sheet
Total net assets at
Equity placing
Tullow successfully placed 66,938,141 new ordinary shares with institutional investors at a price of
Debt Funding
In
Liquidity risk management and going concern
The Group closely monitors and manages its liquidity risk. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices and different production rates from the Group’s portfolio of producing fields. The Group normally seeks to ensure that it has a minimum ongoing capacity of 200 million pounds for a period of at least 12 months to safeguard the Group’s ability to continue as a going concern.
Following the placing announced in
Although there is considerable economic uncertainty at the present time, after taking account of the above, the Directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the 2008 Annual Report and Accounts.
Financial strategy and outlook
Whilst the global economic environment is extremely challenging, the Group’s successful equity placing and recent debt financing means that Tullow has a strong balance sheet and significant financial flexibility.
In 2009, the Group will continue to allocate its capital to projects that provide the opportunity for the highest return for shareholders and seek to augment underlying cashflow through continued cost and capital management and ongoing portfolio activity. The outlook for the Group is very positive, supported by disciplined financial management and significant leverage to higher oil prices.
Disclaimer
This results announcement contains certain forward-looking statements that are subject to the risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to a variety of factors including specific factors identified in this statement and other factors outlined in the Group’s 2008 Annual Report.
Condensed Consolidated Income Statement
Year ended 31 December 2008
Note 2008 2007
pound'000 pound'000
Group revenue 691,673 639,203
Cost of sales (366,108) (353,695)
Gross profit 325,565 285,508
Administrative expenses (43,051) (31,628)
Disposal of subsidiaries 213,268 (597)
Profit on disposal of oil and gas assets 30,614 -
Exploration costs written off (226,701) (64,235)
Operating Profit 299,695 189,048
Gain/(loss) on hedging instruments 42,927 (29,267)
Finance revenue 3,928 3,095
Finance costs (47,238) (48,673)
Profit from Continuing Activities
before Tax 299,312 114,203
Income tax expense 7 (73,069) (61,609)
Profit for the Period from Continuing
Activities 226,243 52,594
Attributable to:
Equity holders of the parent 223,211 50,887
Minority interest 3,032 1,707
226,243 52,594
Earnings per Ordinary Share Stg p Stg p
- Basic 2 30.86 7.10
- Diluted 2 30.49 6.96
Condensed Consolidated Statement of Recognised Income and Expense
Year ended 31 December 2008
2008 2007
pound'000 pound'000
Profit for the year 226,243 52,594
Currency translation adjustments 222,266 (5,321)
Hedge movement 160,996 (79,780)
383,232 (85,101)
Total recognised income and
expense for the year 609,475 (32,507)
Attributable to:
Equity holders of the parent 599,631 (34,214)
Minority interest 9,844 1,707
609,475 (32,507)
Condensed Consolidated Balance Sheet
As at December 2008
2007
2008 (as restated*)
pound'000 pound'000
ASSETS
Non-current assets
Intangible exploration and evaluation
assets 1,417,777 956,580
Property, plant and equipment 986,374 890,416
Investments 447 447
Derivative financial instruments 29,280 -
2,433,878 1,847,443
Current assets
Inventories 37,850 24,897
Trade receivables 69,344 91,443
Other current assets 60,208 33,351
Cash and cash equivalents 311,020 82,224
Derivative financial instruments 19,989 -
Assets held for sale - 11,843
498,411 243,759
Total Assets 2,932,289 2,091,202
LIABILITIES
Current liabilities
Trade and other payables (330,215) (180,626)
Other financial liabilities (210,528) (9,793)
Current tax liabilities (105,282) (31,457)
Derivative financial instruments - (89,509)
(646,025) (311,385)
Non-current liabilities
Trade and other payables (6,089) (15,586)
Other financial liabilities (489,041) (540,272)
Deferred tax liabilities (347,940) (307,615)
Provisions (134,019) (135,139)
Derivative financial instruments - (68,535)
(977,089) (1,067,147)
Total liabilities (1,623,114) (1,378,532)
Net assets 1,309,175 712,670
EQUITY
Called up share capital 73,288 71,961
Share premium 160,714 128,465
Other reserves 582,131 210,089
Retained earnings 467,711 286,668
Equity attributable to equity holders
of the parent 1,283,844 697,183
Minority Interest 25,331 15,487
Total equity 1,309,175 712,670
* The 2007 comparatives have been restated due to an asset held for sale
being reclassified during 2008
Condensed Consolidated Cash Flow Statement
Year ended 31 December 2008
Note 2008 2007
pound'000 pound'000
Cash flows from operating
activities
Cash generated from operations 8 587,650 446,660
Income taxes paid (76,853) (30,030)
Net cash from operating activities 510,797 416,630
Cash flows from investing activities
Acquisition of subsidiaries - (334,954)
Disposal of subsidiaries 207,834 (597)
Disposal of oil and gas assets 77,530 -
Purchase of intangible exploration &
evaluation assets (323,569) (165,726)
Purchase of property, plant and
equipment (136,783) (198,355)
Finance revenue 3,372 3,206
Net cash used in investing activities (171,616) (696,426)
Cash flows from financing activities
Net proceeds from issue of share
capital 8,089 2,661
Proceeds from issue of subsidiary
share capital to minority interest - 1,244
Debt arrangement fees (5,318) (8,431)
Repayment of bank loans (372,583) (29,474)
Drawdown of bank loan 312,929 379,979
Finance costs (40,441) (40,782)
Dividends paid (43,173) (39,406)
Purchase of treasury shares (11,235) (3,722)
Net cash (used in)/generated by
financing activities (151,732) 262,069
Net increase/(decrease) in cash and cash
equivalents 187,449 (17,727)
Cash and cash equivalents at beginning of
period 82,224 99,478
Translation Difference 41,347 473
Cash and cash equivalents at end
of period 311,020 82,224
Notes to the Preliminary Financial Statements
Year ended
1. Basis of Accounting and Presentation of Financial Information
While the financial information included in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards (IFRS), this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to distribute the full financial statements that comply with IFRS in
The financial information set out above does not constitute the company’s statutory accounts for the years ended
The accounting policies applied are consistent with those adopted and disclosed in the Group’s annual financial statements for the year ended
2. Earnings per Share
The calculation of basic earnings per share is based on the profit for the period after taxation of 223,221,000 pounds (2007: 50,887,000 pounds) and a weighted average number of shares in issue of 723,355,745 (2007: 717,025,714).
The calculation of diluted earnings per share is based on the profit for the period after taxation as for basic earnings per share. The number of shares outstanding, however, is adjusted to show the potential dilution if employee share options are converted into ordinary shares. The weighted average number of ordinary shares is increased by 8,675,224 (2007: 14,348,042) in respect of employee share options, resulting in a diluted weighted average number of shares of 732,030,969 (2007: 731,373,756).
3. Dividends
During the year the Company paid a final 2007 dividend of
4. 2008 Annual Report and Accounts
The Annual Report and Accounts will be mailed on
5. Annual General Meeting
The Annual General Meeting is due to be held at Haberdashers’ Hall, 18 West Smithfield,
6. Segmental Reporting
In the opinion of the Directors the operations of the Group comprise one class of business, oil and gas exploration, development and production and the sale of hydrocarbons and related activities. The Group also operates within four geographical markets,
The following tables present revenue, profit and certain asset and liability information regarding the Group’s business segments for the year ended
Europe Africa South Asia South Unallocated Total
America
pound'000 pound'000 pound'000 pound'000 pound'000 pound'000
2008
Sales revenue by
origin 204,602 475,672 11,399 - - 691,673
Segment result 50,615 137,388 (31,854) (40,474) - 115,674
Disposal of
subsidiaries 213,268
Profit on sale
of oil and gas
assets 30,614
Unallocated
corporate
expenses (59,861)
Operating profit 299,695
Gain on hedging
instruments 42,927
Finance revenue 3,928
Finance costs (47,238)
Profit before tax 299,312
Income tax
expense (73,069)
Profit after
tax 226,243
Total assets 495,163 2,229,704 65,290 100,624 41,508 2,932,289
Total
liabilities (213,050) (651,311) (19,494) (31,783) (707,476) (1,623,114)
Other segment
information
Capital
expenditure: 39,990 103,710 4,408 - 7,036 155,144
Property,
plant and
equipment 34,445 293,618 11,589 12,131 - 351,783
Intangible
fixed
assets (81,978) (110,647) (5,749) - (3,933) (202,307)
Depletion,
depreciation and
amortisation - (18,220) (8,085) - - (26,305)
Exploration
write off (12,582) (146,916) (26,729) (40,474) - (226,701)
Europe Africa South Asia South Unallocated Total
America
pound'000 pound'000 pound'000 pound'000 pound'000 pound'000
2007
Sales revenue
by origin 258,838 371,883 8,582 - - 639,203
Segment result 78,979 144,886 1,827 (4,419) - 221,273
Disposal of
Subsidiaries (597)
Unallocated
corporate
expenses (31,628)
Operating profit 189,048
Loss on hedging
instruments (29,267)
Finance revenue 3,095
Finance costs (48,673)
Profit before
tax 114,203
Income tax
expense (61,609)
Profit after
tax 52,594
Total assets 553,340 1,344,226 66,465 112,008 15,163 2,091,202
Total
liabilities (242,597) (527,843) (13,870) (37,731) (556,491) (1,378,532)
Other segment
information
Capital expenditure:
Property,
plant and
equipment 86,960 115,012 6,096 - 4,145 212,213
Intangible
fixed
assets 32,587 152,129 4,411 4,745 - 193,872
Depletion,
depreciation and
amortisation (101,359) (98,379) (3,286) - (2,781) (205,805)
Impairment
losses
recognised
in income - (13,834) - - - (13,834)
Exploration
write off (12,504) (45,862) (1,450) (4,419) - (64,235)
Unallocated expenditure and net liabilities include amounts of a corporate nature and not specifically attributable to a geographic area, including tax balances and the Group debt.
7. Taxation on profit on ordinary activities
a. Analysis of charge in period
The tax charge comprises:
2008 2007
pound'000 pound'000
Current tax
UK corporation tax 38,541 2,328
Foreign taxation 77,034 27,768
Total corporate tax 115,575 30,096
UK petroleum revenue tax 1,382 11,048
Total current tax 116,957 41,144
Deferred tax
UK corporation tax (10,355) 21,631
Foreign taxation (37,385) 229
Total corporate tax (47,740) 21,860
UK petroleum revenue tax 3,852 (1,395)
Total deferred tax (43,888) 20,465
Total tax expense 73,069 61,609
b. Factors affecting tax charge for period
As the Group earns a significant portion of its profits in the UK the tax rates applied to profit on ordinary activities in preparing the reconciliation below is the standard rate of UK corporation tax applicable to the Group’s oil and gas activities plus the rate of supplementary corporation tax (SCT).
The difference between the total current tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax applicable to UK upstream profits (30%) plus the rate of SCT in respect of UK upstream profits (20%) to the profit before tax is as follows:
2008 2007
pound'000 pound'000
Group profit on ordinary activities before tax 299,312 114,203
Tax on group profit on ordinary activities
at a combined standard UK corporation tax
and SCT rate of 50% (2006: 50%) 149,656 57,102
Effects of:
Expenses not deductible for tax purposes 938 12,056
Utilisation of tax losses not previously recognised 1,863 -
Net losses not recognised 118,371 50,706
Petroleum revenue tax (PRT) 5,234 9,654
UK corporation tax deductions for current PRT (2,617) (4,827)
Adjustments relating to prior years (379) (5,613)
Income taxed at a different rate (29,849) (7,321)
Income not subject to CT (170,148) (50,148)
Group total tax expense for the year 73,069 61,609
The Group’s profit before taxation will continue to be subject to jurisdictions where the effective rate of taxation differs from that in the UK. Furthermore, unsuccessful exploration expenditure is often incurred in jurisdictions where the Group has no taxable profits, such that no related tax benefit arises. Accordingly the Group’s tax charge will continue to depend on the jurisdictions in which pre-tax profits and exploration costs written off arise.
The Group has tax losses of 155 million pounds (2007: 131 million pounds) that are available indefinitely for offset against future taxable profits in the companies in which the losses arose. Deferred tax assets have not been recognised in respect of these losses as they may not be used to offset taxable profits elsewhere in the Group.
8. Cash Flows from Operating Activities
2008 2007
pound'000 pound'000
Profit before taxation 299,312 114,203
Adjustments for:
Depletion, depreciation and amortisation 202,307 205,805
Impairment loss 26,305 13,834
Exploration costs written off 226,701 64,235
Disposal of subsidiaries (213,268) 597
Disposal of oil and gas assets (30,614) -
Decommissioning expenditure (194) (5,065)
Share based payment charge 7,862 5,388
(Gain)/loss on hedging instruments (42,927) 29,267
Finance revenue (3,928) (3,095)
Finance costs 47,238 48,673
Operating cash flow before working
capital movements 518,794 473,842
Decrease/(increase) in trade and other
receivables 18,548 (20,472)
Increase in inventories (12,952) (11,162)
Increase in trade payables 63,260 4,452
Cash generated from operations 587,650 446,660
9. Disposal of oil and gas assets
On
10. Disposal of subsidiaries
On
The transaction completed in
11. Called up equity share capital
In the year ended
As at 31 December the Group had in issue 732,889,567 allotted and fully paid ordinary shares of
12. Commercial Reserves and Contingent Resources Summary (Not reviewed by Auditors) working interest basis
EUROPE AFRICA SOUTH ASIA
Oil Gas Oil Gas Oil Gas
mmbbl bcf mmbbl bcf mmbbl bcf
Commercial
Reserves
1 Jan 2008 2.0 258.7 131.1 20.1 - 105.9
Revisions - (15.9) 140.2 (6.5) - 36.8
Disposals - (7.9) - - - -
Production (0.2) (43.5) (14.8) (1.3) - (11.8)
31 December 2008 1.8 191.4 256.5 12.3 - 130.9
Contingent
Resources
1 Jan 2008 - 129.3 160.9 1,014.5 - 16.2
Revisions - 15.2 140.7 96.0 - -
Disposals - (12.7) - - - -
31 December 2008 - 131.8 301.6 1,110.5 - 16.2
Total
31 December 2008 1.8 323.2 558.1 1,122.8 - 147.1
TOTAL
Oil Gas Petroleum
mmbbl bcf mmboe
Commercial
Reserves
1 Jan 2008 133.1 384.7 197.2
Revisions 140.2 14.4 142.6
Disposals - (7.9) (1.3)
Production (15.0) (56.6) (24.4)
31 December 2008 258.3 334.6 314.1
Contingent
Resources
1 Jan 2008 160.9 1,160.0 354.2
Revisions 140.7 111.2 159.2
Disposals - (12.7) (2.1)
31 December 2008 301.6 1,258.5 511.3
Total
31 December 2008 559.9 1,593.1 825.4
1. Proven and Probable Commercial Reserves are based on a Group reserves report produced by an independent engineer. Reserves estimates for each field are reviewed by the independent engineer based on significant new data or a material change with a review of each field undertaken at least every two years.
2. Proven and Probable Contingent Resources are based on both Tullow’s estimates and the Group reserves report produced by an independent engineer.
The Group provides for depletion and amortisation of tangible fixed assets on a net entitlements basis, which reflects the terms of the Production Sharing Contracts related to each field. Total net entitlement reserves were 114.5 mmboe at
Contingent Resources relate to resources in respect of which development plans are in the course of preparation or further evaluation is under way with a view to development within the foreseeable future.
About Tullow Oil plc
Tullow Oil plc is a leading independent oil and gas, exploration and production group and is quoted on the
Events on results day
In conjunction with these results Tullow is conducting a London Presentation and a number of events for the financial community.
09.30 GMT – UK/European conference call (and simultaneous Webcast)
To access the call please dial the appropriate number below shortly before the call and ask for the Tullow Oil plc conference call. A replay facility will be available from approximately noon on 11 March until 19 March. The telephone numbers and access codes are:
Live event Replay facility available from Noon
UK Participants 020 7806 1967 UK Participants 020 7806 1970
Irish Participants 01 486 0916 Irish Participants 01 659 8321
Access Code 1484413#
To join the live webcast, or play the on-demand version which will be available from noon on 11 March, you will need to have either Real Player or Windows Media Player installed on your computer.
11.00 GMT – Press Conference Call
To access the call please dial the appropriate number below shortly before the call and use the access code. The telephone numbers and access code are:
Live Event
UK Participants 0808 109 0700 UK Local Call 0203 003 2666
International
Participants +44 203 003 2666 Irish Free Call 1 800 930 488
USA Toll Free +1 866 966 5335 Access Code 4959334
To access the call please dial the appropriate number below shortly before the call and ask for the Tullow Oil plc conference call. A replay facility will be available from approximately 18.00 on 11 March until 25 March. The telephone numbers and access codes are:
Live Event Replay Facility available from 18:00
Domestic Toll Free +1 800 573 1506 Domestic Toll Free +1 800 642 1687
Toll +1 973 200 3368 Toll +1 706 645 9291
Access Code 87141119
For further information contact:
Tullow Oil plc
+44 20 8996 1000
Aidan Heavey, CEO, Ian Springett, CFO
Chris Perry, Head of Investor Relations
Citigate Dewe Rogerson
+44 20 7638 9571
Martin Jackson
George Cazenove
Murray Consultants
+353 1 498 0300
Joe Murray
Ed Micheau
SOURCE Tullow Oil plc