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Executives

Aidan Heavey - Chief Executive Officer

Ian Springett - Chief Financial Officer

Paul McDade - Chief Operating Officer

Angus McCoss - Exploration Director

Analysts

Theepan Jothilingam - Nomura

Brendan Warn - Jeffries

Michael Alsford - Citigroup

Rahim Karim - Barclays

Thomas Adolff - Credit Suisse

Andrew Whittock - Liberum Capital

Thomas Martin - Canaccord Adams

James Thompson - JP Morgan Cazenove

Brian Gallagher - Investec Securities

Anish Kapadia - Tudor Pickering

Muna Muleya - Merrion Capital

Ritesh Gaggar - GMP

Gerry Hennigan - Goodbody

Tullow Oil Plc Ord (OTCPK:TUWLF) Q2 2013 Earnings Conference Call July 31, 2013 4:00 AM ET

Aidan Heavey

Good morning and welcome to the half year results presentation. As usual, I have just one slide but I'd like to just quickly talk to some of the points on this and to highlight some of the issues. I know when we go around with some of the analysts on the roadshows, we get sort of a different flavor of the way it is that we think and some of the comments and feedback that we get is that the overview of the business is sometimes missed, and what I'd like to talk about is some of these key issues, and among the first thing is obviously the financial strength of the business.

When I stand up here and say that we were financially strong with a good balance sheet, I really do mean it, but we are very fortunate and when you look at our business and we have very, very strong assets and our strategy going forward has been to look at the key assets, to get involved in key aspirations, and to farm them down at the appropriate time. And the good assets, the big assets like TEN in countries like Ghana which are good stable countries are very rare assets and to farm down these assets and get some carried interest is not an issue, is not a problem, [indiscernible] companies to do it, the issue is value.

So we don't see this as an issue, we don't see this as a problem, and in places like Uganda, Kenya which we'll talk about a lot in the presentation, the main issues here is when we got involved in these areas, they were pretty remote, there was no infrastructure, there were no pipelines and we were looking at finding oil and gas in pretty remote parts of the planet. And as we have explored there and moved them into quite large constitutes, and places like Kenya, Uganda and Ethiopia, the [indiscernible] positioned there, but it was like starting off in the North Sea. But right now, because of the commerciality of these areas, the infrastructure, the pipelines, all that sort of stuff is going to be built, not by us but by other companies, and there are a lot of companies out there who are very keen to go in and build the infrastructure and finance them.

So a lot of these midstream and downstream parts of the business are easily financed. What we are looking at doing is concentrating on our part of the business, which is finding oil, finding oil is what we have been particularly good at doing, and we find oil and we open up new basins by being pitballed and going out and drilling wildcat wells in far-flung places and hopefully proving up new basins. And we don't expect those wells to come in every year, we don't expect every well to be a success, but what we do hope is that every three or four years, we have one new basin opening well, and if we do get a basin opening well, we generally have a large acreage position.

So when we have a large acreage position, it means that we have four or five years of low-risk exploration where we can meet our targets of adding 200 million barrels of oil every year on a lower risk basis and we've achieved that very successfully for the last five years. And if you look forward today at one of the themes of the presentation, we are saying can we achieve that for the next five years and we're pretty confident with the acreage we have and the positions that we have in low-risk areas now that we will also achieve that.

The other aspect to it is when we highlighted in our presentations and in the strategy last year, was an exploration led strategy. The exploration led strategy is not just about exploring, it's also about finding oil and developing it and keeping early oilfield, so we're looking at fresh new oilfields that can replace the production on an annualized basis. So we produce around 30 million barrels of oil in a year, so we replace that from our existing fields, and we've done that very successfully for the last few years. If you look at the new fields that we bring on stream, they've all got a lot of upside and potential in them.

So this is our core assets, so we view these pretty much as like going concerns, you look at Gabon, at Equatorial Guinea, all of those areas have been pretty flat for a long time. We're pretty confident that Ghana will be pretty flat for a long time. Uganda will be pretty flat for a long time. Kenya will be pretty flat for a long time. So these are core assets and core areas, very strong production, and they are generating a lot of revenue and a lot of value on an annualized basis. The fields that are getting more mature, we will sell out and we started the process of doing that and we hope to have the results of the sales process this year. We've already got fields going on Bangladesh, we are talking to companies now in Pakistan, the U.K., and the Dutch assets. So we've been high-grading our assets and very successfully.

So, I think the Company today is in great shape and we have a very strong financial position, we are not at all stressed in looking after assets, there is no pressure on us to move any assets faster than we feel comfortable with, we are looking at maximizing the value of each of those assets, but one of the key aspects that you'll see in the presentation, one of the things we want to get across is, I think it's not just the analyst community or the investment community but I think the oil industry in general right now does not appreciate, but they soon will, how important the East African rift basin oil industry is going to become.

We've had great success in finding oil in Uganda and now we've had three wells in a row in Kenya, but we will start to give you a flavor through Angus is how important we see Kenya becoming, and we've also found oil in Ethiopia. So we believe that that sort of area is going to become a major, major oil province, and Tullow dominates the whole area. So we see this as an area where we can add huge value over a long, long period of time. So I think it's just one of our assets but it's a tremendous asset and I think if you were to look at the main assets of Tullow today, we're African best, I wouldn't swap any of our main assets for anybody else's assets. I think we have some of the best assets in the continent.

We've had a mixed success in South America. Obviously our first well in French Guiana was very successful, and then we've had a number of unsuccessful wells. That doesn't mean that French Guiana doesn't have oil, it does, it's got this Zaedyus field, and we've learned a lot, Tullow as a company, from the experiences. It's the only basin that we've opened up that really hasn't delivered for us but it is the only basin we are not operating, and it's a lesson for us going forward, the difference between an operating company and a developing company.

And so it may change our strategy going forward to slightly the way the industry started to work in joint ventures but I think we will find more oil in French Guiana and we also will drill dry holes as part of our business, and unless we drill dry holes, we're not going to find oil.

So I'll hand you over to Ian who'll take you through the results but I think [indiscernible] the whole tranche through the presentation will be shown, again the strength of the balance sheet and the strength of our production assets and the quality of those assets and the low risk exploration upside that we have in the business plus a very good selection of new basins that hopefully one of those will work over the next four, five years. Thank you.

Ian Springett

Thanks Aidan and good morning ladies and gentlemen. We'll take you through the financials. The half year results, very pleased to report revenues and the gross profit is up around 15% on the back of increased Jubilee production, but yet run through in operating profit and profit after tax down but really because as highlighted on the slide here, the benefits of the profit on disposal from Uganda in the first half of 2012. We have dividend unchanged at $0.04 per share, capital investment very much in line with expectations. And a number that's actually very important, cash generation from operations, over $1 billion, the first time in Tullow cash generation from operations of over $1 billion, so in excellent shape there. So overall, a good set of results, really shows the underlying strength of the business and I'll talk more about the elements of these as we move through the slides.

First of all, our net income, starting on the left, net income first half 2012, on the right first half 2013, small reduction regarding price, oil prices are 5% lower, gas prices are 14% higher, overall a net decrease. The benefit there of Jubilee volumes and [indiscernible] $100 million dollars, partially offset by increased operating costs, some of those around 60% relates to Ghana load up to the increased volumes as well as the increased work cost, balance around mature fields. Other costs, D&A and others are now a bit lifting, so there aren't many costs, overall a net small number there in DD&A cost per barrel, pretty much in line with last year.

The two items really in the middle there, first of all, the one-off gain on disposal from Uganda in the first half of 2012 and we have a lower level of exploration write-offs relative to 2012 to $75 million lower. Tax is also lower than the first half of 2012. The two principal reasons there, higher taxes in Ghana but much more offset of course by the $142 million provision we made for capital gains tax for Uganda in the first half of 2012. So overall, underlying profits, if you like, very much up versus 2012.

For our cash flow perspective, we've got increased cash from operations. Really you got to look at the right-hand side there, $847 million CapEx, around $500 million of that is exploration. When we take that into account plus the amount we spend on finance cost and dividends and tax, we need to hold that thought if you like going on next slide when we look at the model and how we are effectively funding from operating cash flow our exploration costs and our ongoing sort of tax and dividends, et cetera, and then the balance, the $901 million draw down in debt, went to fund the acquisition of Spring and the balance of the capital for D&O. Capital expenditure forecast remains unchanged for 2013, $2 billion, and not really too much more to say on that slide.

Going around to the next slide, this slide talks about at year-end we announced [indiscernible] or reaffirmed our strategy and gave much more clarity on how we plan to execute that strategy, and the first thing to say on the left-hand side there, high margin production cash flow. Our production up some 15%, so we've got more high-margin production coming in there, so we're delivering on that piece. We are spending around $1 billion on exploration appraisal and our cash flow of in excess of $1 billion is really covering. In the first half of the year, we can see that's already being delivered and in a sense, as I shared with you on the previous slide, how in our first half our production cash flow is covering our exploration cost and our cost in dividends, et cetera.

Good success in exploration as Aidan was saying, it's about really building and looking at it from a basin perspective and really our success in Kenya has really changed the views about it and companies are looking forward to developing development options for that. So Kenya is a big new story in terms of the exploration spend. In terms of monetization, we are making good progress in the TEN farm-down, we've obviously got Plan of Development approved, we've discussed our plans with the Government of Ghana, we've now gone to our financial advisors [indiscernible] we've key potential acquirers and those conversations have gone well, we are putting together a [indiscernible] as we speak, we expect the [indiscernible] to be open in late August and we hope to have this in around end October with finalization and due diligence through the first quarter of 2014. But as Aidan said, it's a big asset, it's in a stable country and one which is [indiscernible] for a number of companies. On top of that, the Bangladesh sales are being finalized and we've received initial bits for tender evaluation for our North Sea assets.

At Tullow, we talk a lot about where we are on TEN which is proceeding towards final contract awards, [indiscernible] and being finalised in Uganda where we are in Uganda but in particular again, how we are already looking to develop plans and options for Kenya. So really I think good progress and in very sort of ability to say that over the course of the last six months, the structure or the strategy we set out in each component of that, we're delivering.

In terms of summary, as Aidan said, a strong balance sheet, improved revenues, operating cash flow income, we've got debt facilities of $4 billion, net debt to $1.7 billion, unutilized capacity equals to $1.7 billion, and that balance sheet is also if you like being, in capacity if you like, it means strengthening in any way by increasing operational cash flow and our proposed fund activity.

As we said, we have significant progress in Kenya, Ethiopia and Uganda, we're in process of executing our major development of TEN project in Ghana, we've got new campaigns in Mauritania, Guinea, Norway, and from a CFO perspective, this success is very much I see not as a funding issue but actually a funding opportunity. It's a great place to be, and I know it is tough here, sort of accounting for lots of dry holes and projects that aren't going anywhere, and what we're doing here is developing projects and we've got a model that we talked about, just like being with TEN with a carry, where we'll carry substantial development costs, then we are looking always to look at what is the best way to fund this business, to monetize exploration success, and to up production for kind of low capital input.

So in summary, it's a business with strong production and growing cash flow, continuing portfolio of high-grade monetization, we select developing those key projects, TEN is one of the best example, always looking to produce that capital exposure and development phase, as Aidan says, our capital exposure in the development phase is much around the upstream parts of it, pipelines and steel refineries are to be funded by others, and also the Company continues to look at further debt diversification and we continue of course to substantially hedge or to protect ourselves from the lower prices through our hedge program.

So with that, I'll hand it over to Paul for D&O perspective.

Paul McDade

Thanks Ian. It's another kind of busy six months. I think I'll start off by saying again importantly we had a good six months from kind of a health and safety performance perspective, so you need to kind of approve that we run safer, we don't know if it's pretty fundamental to what we do, and especially given some of the areas we are working on across East Africa and offshore West Africa where there are high risks, so if we say [indiscernible] again the last six months have been excellent, our focus on kind of health and safety, and importantly in the East Africa and our social performance in that area, to have smooth running of the operations.

We obviously mentioned October 10, major milestone achieved in terms of the approval of the Plan of Development and moving up forward. The production portfolio has been pretty strong over the first half, we've got quite a bit of maintenance and activity which will follow on second half production a bit and I'll touch on that, and again the portfolio management activity is important as well and they are progressing. However I think the real excitement lies in East Africa and I'll also talk about that how we are now looking at Kenya and Uganda together and the potential already to move to development in that area.

In terms of production, first half very strong almost 80,000 to 90,000 barrels a day averaging for the first half and Jubilee has been stable around about 110 constrained by gas compression ability on the FPSO. And the second half we're going to see a lot of activity on the FPSO where Company upgrading those gas compressors, so it's a big work going on in the FPSO. We've actually extended our [indiscernible] it would be the first plunge that we've done in Jubilee since we started out. So I see taking a decision to extend that out to around about 21 days from our previous estimate of just around kind of two weeks or even less. It was the time to do the proper maintenance and checks, et cetera.

And then probably what was going to impact the second half, we just had a recent failure of one of our water injection pumps. So as we get the gas compression cleared, we will start ramping up, we'll probably control it for a little while. We had suspected some problems with the motors and the water injection pumps and had pre-ordered equipment which means the lead times are not particularly long. So that is a short-term impact just in the third and fourth quarter until we get those water injection pump motors out and the new ones go in. It's a fairly big piece of equipment in terms of tons, so there is not a small drop to change them but it's really had just facilities impact. So I mean you can idle that, let's go with my group perspective, we've taken kind of a cautious approach by adjusting guidance to 84 to 88 for the full-year average.

If we look further out, we're working hard on the Jubilee FPSO capacity and how we can expand that. Obviously TEN is now going to contribute around mid-2016 as you'll see from East Africa and we're looking at ways to see how that can contribute in the medium-term and also where we are carrying on with that portfolio activity which will remove Asia and SNS from our portfolio as we go into 2014, which is indicated in the chart.

West Africa, as we removed Asia and Southern North Sea, we got a lower volume production, we're then receiving high-value Ghana production which I'll comment and talk about, and importantly, our portfolio of West African assets, and the great thing about these assets which we acquired mainly through the acquisition of Energy Africa back in 2004, 2005, is we actually have a big portfolio that we have been able to work on and it's just been a continuing stream of opportunities to maintain production. These assets are being produced on their own, it's kind of 30,000 barrels a day plus for quite some time, and it's just the stream of activity of inflow w4ells and so a great portfolio effect of that various fields contributing.

We've got activity ongoing, it's actually good activity, I think right now is about five fields in Gabon which we are working infill and workover opportunities and we just completed a very successful infill program on the Ceiba field which was guided by some new 4D seismic which worked very well. We're not going to use that 4D seismic to get the upcoming infill program on Okume. Again, one of the downside in the second half was we had planned to already have the Cote d’Ivoire Espoir infill program underway. Unfortunately as the tender assisted rig was railing up, we were pretty unhappy with the EHS performance of that contractor, we hope to done for a while, in much honesty are going to try again, as in work and actually the operator has to take it to terminate that contract from an EHS perspective. So all that does is, it defer some of the infill poised to contributions from Espoir into 2014 rather than seeing some of that impact in the second half of 2013 which I know a lot contributes up to the updated guidance. I think the right decision as you could just carry on with the actually performing at a low EHS standard rig and cannot make the best of it so it's generally the wrong decision, it's better to cut it there and actually go back to the market and get a higher performing rig contractor in to do that work.

Mauritania and Congo, non-core assets but continue to produce around 4,000 barrels a day stably, and Banda project, the gassifier project in Mauritania, making reasonable progress there on technical and commercial aspects, so that's something we're looking at and we may get it towards sanction later this year or into 2014.

Looking at Jubilee, as I said it's been very stable recently, around about 110,000 barrels a day and well capacity is still in excess of 130,000 barrels a day, so about as you would expect the FPSO capacity, and what we're doing there is we're got the Phase 1A wells, many of them are being drilled, we've completed a few of them, both in producers and injectors, and we've got a number of more to complete and we'll just complete those as we are require them to continue to top-up the well capacity, so no great rush there.

The gas compressor upgrades that we've pointed to, they are actually started and ongoing at the moment, we will get those complete by September. So that should remove the gas constrain on the vessel, and as we mentioned before, we've already tested the vessel above 125,000 barrels a day and in excess of 125,000. So we hope that when we remove the gas constraint, we should be able to step-up and we're very much in target for that year-end exit of about 120,000 barrels a day. And as I mentioned just in the short term, we will have to kind of just constraint the vessel a little bit. The water injection failure as it is a mechanical issue with some of pump equipment and we had to build up quite a good bank of pressure support so that even when the production has been down, over the last couple of years we've been injecting pretty hard, so there's good pressure there in the reservoir, but that will deplete and then we'll get the injectors back on again and build up. So really the annual average although have been pretty hard in the first half, likely overall the year, the annual average for the year, is really 95,000 barrels a day.

So beyond this, where again I mentioned before, kind of looking at some new style thinking around how could you step up the FPSO capacity or pressure, how you could do that, there are some ideas we've got and really that's all about saying we've got a lot of infill potential from this infill development so we can move on and do, we'll only do that as we require it to throw the FPSO capacity, there's no point in investing capital really if the FPSO is a constraint say 120 to 125. So what we are looking to is could we step up the FPSO capacity and actually accelerate some of that well investment and therefore increase the value of the asset. So that's something we're looking at and obviously those high-end potential from the West Cape Three Points discoveries which will remain trying to accelerate as well. So that's something that's going on in the background looking for opportunities to add value to the asset.

In TEN, I'd say very pleased to get the PoD approved, we've drilled a couple of wells recently in the TEN area in Enyenra-6 and Ntomme-4, both successful both indicated slightly deeper than expected, not materially, but slightly deeper than expected oil water contact, so we can now reinforce the resource levels we estimate. We are just finalizing the contracts for the main items, the FPSO and various components of the subsea [indiscernible] contracted and working. So that is a good quarter rig for the drilling campaign which ultimately will reach about 24 wells, probably around 10 or so before startup. And targeting First Oil around mid-2016 and the overall capital cost now we are gauging around about $4.9 billion. That includes some previous guidance which we gave as we were going through the contracting process.

State of a couple of things; one is we decided to go for both gas injection and water injection as the reservoir development plan in Ntomme. Although it doesn't impact the base case resources or reserves rather materially, what it does is it gives you much greater access to upside scenarios by having both, so we decided to invest a bit more in our water injection in Ntomme as well as the gas. And we have contributed to the gas export pipeline that runs between the TEN platform, by the TEN FPSO and the Jubilee FPSO, and our negotiation with government just in terms of finalizing the PoD, and also we've been closing out the various contracts and finalizing the scope and that's caused [indiscernible] as well. So that's really are about $4.9 billion, and as Ian said, we have spoken to government about the farm-down and they are comfortable with that and that process is now underway.

Moving to East Africa, talking about Kenya and then talk about it more regionally, I guess obviously come on and talk about the enormous exploration potential across Kenya and Ethiopia and acreage what I'm going to introduce just focus on the Lokichar Basin where we have made the Ngamia and Twiga discoveries. Previously we've indicated probably in excess of 250 million barrels from those two wells post the extensive [DSTs] (ph) we did. We made a decision early to focus the rig on testing rather than going off to drill more wells, and actually that's a very good decision because the result of the testing showed a number of zones that we were uncertain about whether they were net pay or not net pay, comes out to be net pay in contributing oil production. So that was how we managed to up double effectively and both wells did the net pay and that led to the 250 million barrel plus estimate for those two wells. Also it showed good material production potential from both wells over about 530 barrels a day, so pretty healthy.

Then we had the Twiga discovery which is still kind of under assessment, the deeper zones are under assessment at the moment, so that's looking pretty good and we think once we get our head around and can analyze the extent of that, we're going to have the resources well in excess of 300. So we're for now not in a position today to declare commerciality, that's a process that one goes through, does the appraisal, works through development studies, and then goes to the government formally in the course of commerciality, that's some real, I think what we're seeing to be is given the volumes we have we are definitely over the threshold for development, so no room to start embarking upon looking at all the development options.

The obvious one is the pipeline, we've talked about that before in Uganda in context and I'll talk in the next page about where that's that, and developing we've talked, just to fly this, we see in 10 years possibilities for start up production fees and there is real infrastructure there, there is a much bigger market within Kenya with easier access to the port for any export that we decided to do, and o we see the potential that why couldn't we be producing kind of 10,000 barrels a day, that could come as soon as maybe 2016 not so obtaining. So a lot of question marks over how we do that but oil infrastructure up in Northern Kenya is not great, so there will be a lot of work to be done there but we definitely think that's a possibility. So that's something we are now just initiating studies on and we are going to initiate discussions with government in the very near future over their desire for that and then working together with them to try and deliver.

Looking at it more regionally and first Uganda and then kind of regional pipeline, Uganda we continue to finish off back doing the appraisal work Tultule up in the Northern area pretty busy and Block 1 finishing off their appraisal. We pretty much finished ours in Block 2 as [indiscernible] in Block 3. All the work to-date kind of very much underpins resources of about $1.7 billion. And obviously in the background, we have a lot of work going on, there's a lot of baseline study work that you do, environmental, social performance study work that you have to do before you get into the sanction of the development, there's infrastructure studies going on where we're working well into pre-FEED and heading towards FEED on some of the facility studies, et cetera. So that work all carries on in the background.

As you know, one of the big challenges in Uganda has been getting the absolute agreement in principle that there will be not just a refinery, there will be a refinery plus a pipe, and that's what the MOU is all about. I think it's take time in Uganda and we are still doing some of the fine details around the MOU but the principles as I said before were all pretty much agreed. Now in the recent meeting between President of Kenya and President of – there are so many affected presidents who are saying [no to] (ph) the MOU because what you told there was there's going to be a pipeline, there's going to be a small local refinery and actually there's going to be an extension of the products line to contribute to the balance of security supply for products within Uganda and beyond over. Actually President [indiscernible] was there too. So [indiscernible] as we were still busy with these bureaucrats to kind of finalize some of the details.

I think the other important point was the agreed Kenya will take the lead on the export pipeline. Kenya has this idea of the [indiscernible] project which is like a note on the corridor oil export pipeline, and we are now very focused on with the Kenyan government and the Guineana government is kind of a note on Lokichar and a note on Kenya to allow the export pipeline for the export of the discoveries we're making in Kenya and then an extension of that line going to Lake Albert to connect and deliver oil from Lake Albert. Because of the work we have done in Uganda, we pretty much finished all the concept work on line and we already have identified the contract and will be moving fairly quickly into kind of pre-FEED work on the line, but engaging a lot more now with the Kenyan government as well as the Uganda government.

So in terms of sum up, strong production in the first half of the year, we've got some maintenance stuff which [we'll see still going out] (ph) a little bit for the sort of full year, but of course the portfolio production has been strong. TEN, we're now in the execute mode and very much focused on a mid-year 2016 delivery of TEN successfully and within budget. East Africa is getting incredibly exciting already even from a development point of view and progressing towards some commercialization of that. And also we keep focused on the portfolio management aspect of our strategy both in TEN and Southern North Sea and Asia.

So with that, I'll hand over to Angus.

Angus McCoss

Thank you, Paul. Good morning, ladies and gentlemen. So, let me go through an update on exploration and appraisal, and our strategy remains unchanged, focused very much on oil, high-value light oil, focused in Africa and the Atlantic margins. We are going about the discovery of oil in a balanced way with a set of six campaigns running in parallel and those campaigns are highlighted there in those ellipses.

And moving forward, but also backwards, looking of our track record, an interesting pair of charts here. On the left-hand side, you see our historical volume delivery track record. On the vertical axis of that left-hand chart, you see the Tullow net volumes added in million barrels of oil equivalent and right along the bottom axis the years from 2007 through 2012. The two lines on that chart on the left-hand side, the brown one represents our East African contingent resource additions net to Tullow through those six years, totaling some 700 million barrels of oil equivalent, and the blue line shows our performance and track record over those years in delivering in the Atlantic margins nearly some 500 million barrels of oil equivalent. That's a total of 1,200 million barrels of oil equivalent over six years, is an average of 200 million barrels of oil equivalent annual resource additions. And 200 million barrels of oil average annual resource additions is what we delivered in the last six years, we'll deliver again this year, next year, and the year after.

On the right-hand side, you see a chart where on the vertical axis you see the returns on our investments and the bottom axis the volumes that have been delivered. This plot has been put together independently by Wood Mackenzie and their benchmarking survey on this exploration industry and you see our performance against our peers. We are highly competitive in delivering returns well above the cost of our capital. We are in the right place here, on the top right-hand corner, delivering volume and value.

We decided this little flying bullet here. Kenya, this is not as much more a part of our recent track record but 2013 Kenya. You see that we are already on a steeper gradient if you compare that against the brown curve of the East African delivery track record, we're up to 150 million barrels net Tullow and that's 300 million barrel gross number that you see that we've reached that point in 1.5 years, where it took over three years to reach that point in the Uganda campaign. So we're off to a running start in Kenya.

To go about opening up these basin trends and to deliver that 200 million barrels annual average per year, we have to go about it in a balanced way spread our risk across the exploration campaigns, and these campaigns compete for capital resources and they evolve to grow value through time. So from left to right through time, as these campaigns take their course, we are back to the outcomes to the well results that come in and we build on and reproduce the successes that we have. This is a representative diagram from 2005 through 2015 going forward and you see here we split it into two colors, the top half represents our East African campaigns through time and the bottom half of the chart shows our campaigns in Atlantic margins.

In the top part, you see we split it into East African rift basins, we don't show activity in East African margin essentially on the margin and moving offshore. In the top one, the success started in Uganda in 2006 and that campaign has evolved very successfully into what we are now pursuing in Kenya and Ethiopia, and the East African margin has evolved from a position in Tanzania to chasing oil offshore in Mozambique and soon to be exploring drilling in Madagascar. It's been a successful campaign so far. As you saw from our track record, Uganda is a prolific basin, we've had 2.9 billion valuation proceeds already from Uganda. The Kenya- Ethiopia trend as you see at the moment gives us multiple rift basins with similar potential. South Lokichar already 300 million barrels as you've heard and today we are announcing that we've achieved the threshold for development around in 16 months.

Looking at the blue campaigns, the Atlantic margins, the Equatorial Atlantic, Central Atlantic, started off in Equatorial Guinea, led to Ghana, the discovery of Jubilee, and those campaigns have spawned [indiscernible] places that we are pursuing in the Atlantic, in Mauritania, in Guinea, and the Guyanas in Suriname particularly. What we're looking for there from those three campaigns, Mauritania, Guinea, and the Guyanas is to deliver another Jubilee. We see how important the Jubilee cash cow is to Tullow and through these three campaigns we expect them to deliver another Jubilee. We've also evolved our position in North Atlantic from one dominated by gas in the Southern North Sea in the U.K. and the Netherlands and freshened that up, rejuvenated it with oil prospectivity in the more prospective areas of Greenland and Norway.

So just running through our balanced state of exploration and appraisal campaigns, as I said we have to go about this wildcatting in a balanced way spreading our risks, and from this activity, we will spawn, and we are spawning, new lower risk activity streams ahead of us. So let's run through these quickly from left to right on this map, South America, the Atlantic margins campaign of South America, one out of four successes in French Guiana, not what we would have desired obviously but we did get off to a tracking start with Zaedyus-1 and we believe there is still strong prospectivity remaining in French Guiana. We believe it is more a matter of where location than anything more fundamental to do with the prospectivity and richness of the plays in French Guiana. But mid-term, our focus turns now to Suriname to our operated venture, offshore Suriname Block 47 where we are in command of the exploration strategy and where we see some very strong prospectivity ahead of us in our joint venture there with Staatsolie.

West Africa and Central Atlantic margins, exciting campaign coming up there, Fregate-1 to spud in August on a Cretaceous turbidite Scorpion prospect which is partially derisked by the deepening of the [indiscernible] well a while ago, and some follow-up wildcats Tapendar, Sidewinder and Ibis.

Swiftly on West African Atlantic margins, our focus there shifts to Paon-2 and to explore the appraisal in Cote d’Ivoire and to Guinea and the drilling of one of these two prospects, Sylli & Eos. We have about such success in Sierra Leone and Liberia, so those positions are under review as we focus on Guinea and Cote d’Ivoire.

In East Africa, and you'll see much more of this in the rest of my presentation, this is clearly the winning campaign of the six campaigns underway. We wanted to know that a few years ago when we started on these six campaigns and that's why we spread across these six campaigns, but this is clearly a front-runner. Three out of three successes in the South Lokichar basin and we've already exceeded the threshold for development and we are preparing for more basin opening wildcat in Omo, Chew Bahir, Kerio and the North Lokichar basins, more on that in a few moments.

East Africa Transform Margin, important activity there, trying to make a breakthrough on the edge of the gas basin, trying to find out lucid oil offshore in East Africa. We made a gas discovery at Cachalote 38 metres of net pay there, that's not what we are after, and we are in pursuit of oil and we hope we may find it in Buzio-1 which is currently drilling.

North Atlantic Margin positions, strong portfolio in Norway after our acquisition of Spring Energy, key wells coming up there in Mantra, adjacent to the Troll field, Wisting is about to spud, and a high risk the big upside play-tester at Kuro, and our expensive 3D seismic survey in Greenland is throwing up a really job prospect there, a billion barrel prospect in our acreage in the Greenland and we are kind of reviewing our options about how to realize the value from that prospect.

So turning now to our East Africa and tertiary rift basin campaigns, as I said clearly this is the front-runner amongst those six exploration campaigns. We showed this type of chart last time we talked, half a year ago, and the top left-hand diagram is a cascade of a tree of outcomes arising from the basin opening well Mputa-1 in Uganda in the Lake Albert rift basin. That discovery well led to three plays which were successfully opened by Kasamene-1, Waraga-1 and Kingfisher-1 and those were then followed up with a very high success ratio to deliver 1.7 billion barrels of oil discovered.

So that becomes the unit of exploration in East Africa. We can forget about well by well as the unit of exploration in East Africa is the basin and the basin we have established in Uganda typically has a discoverable volume of about 1.7 billion barrels. Now we have 12 of these basins in our portfolio and one in Uganda discovered, three in Ethiopia one of which we've drilled, the Sabisa-1 and kind of it all shows in the Omo Basin, and we have eight similar rift basins in Kenya, the first one that we've drilled is South Lokichar Basin has delivered immediate success within 16 months to achieve the development threshold of 300 mmbo, well in excess of 300 million barrels.

So the way we look at this is not really well by well, we look at it in terms of how many of these basins could be successful, and the bottom left hand chart just lays out some possible campaign scenarios in gross potential billion barrels as the vertical axis here and delivered through time along the bottom axis, horizontal axis. So one out of 12 basins is where we are in Uganda delivering 1.7 billion barrels, two basins to deliver 3.5 billion barrels, four basins is entirely plausible as a sensible risking could deliver us close to 7 billion barrels, and also included here an 8 out of 12 basin success scenario. So it's a long shot but it's something we're going to try and do with frontier exploration, we're going to address each of these basins and see if that's entirely possible and that we deliver in excess of 10 billion barrels of oil. So clearly a potential to be a new petroleum province as Aidan rightly described it.

Now to do this, couple of technology slide just to show how we've moved on from FTG, Full Tensor Gradiometry Gravity surveying, which we deployed very successfully in Kenya to deliver that very high success ratio and in Uganda, and we are certainly doing FTG but we're doing FTG plus, if you like, we are doing more of an FTG, we're doing what we call Ambient Enhanced Inversion. Now that looks at the full spectrum of geophysics from high-resolution local measurements in the laboratory well logging borehole seismic scale all the way through to low-resolution regional scale measurements done through gravity instruments, electromagnetic instruments, using natural sources of energy, using the sun, using the earthquakes, using tidal energy in fact with the heat of the rock as the moon goes overhead. So Tullow is integrating this free and natural ambient energy to enhance our standard activity of physical methods and this is really a pioneering application of this integrated approach where we are planning overlapping geophysical methods to invert this geophysical data into the geological models to help us locate – or is pushing FTG to the next level.

So back to its application in Kenya and Ethiopia, we are tactful in this 100,000 square kilometre opportunity with that technology in three scales of exploration in multiple basins. If you remember, that 100,000 square kilometre is about the size of the North Sea actually with basin systems. The small-scale, the detailed scale 25 square kilometre scale is the appraisal testing which doubles the pay in Ngamia and Twiga South, you heard that from Paul, 10,000 barrel oil per day total combined flow rate potential from these two wells. A mixed scale of exploration is the drilling out of the South Lokichar Basin, unless it has already exceeded the threshold for development there, and Etuko has made an important new oil discovery, and the third scale is the biggest scale, the 100,000 square kilometre scale is drilling multiple wildcats to open up these other basins and as part of that program, Sabisa has established the Omo Basin is oil prone.

So just zooming in on one of those basins,, the first one, South Lokichar Basin, the map on the left is fairly self-explanatory, you see the green blocks, Twiga South, Ngamia and Etuko, importantly Etuko is on the east side of the basin. And the cross section on the bottom right shows how we had moved over to the East Flank of the rift basin open up actually, and the chart above it, you see the cascade, the tree of exploration wells and prospects and Ngamia opened the basin Twiga, it continued our work along the Rift Bounding Fault Play, the String of Pearls, is currently being followed up at Ekales which is a well being drilled as we speak between Twiga South and Ngamia, we are very hopeful for that well, it's ideally placed between the two discoveries, and then Etuko is very important, we opened the Rift Flank Play with lots of prospects to fill up over there. So two rigs drilling out of this basin, a third rig and a dedicated testing unit contracted to support increased activity in Kenya by the year-end.

So I'll just put together in my, these are my final slides here, a series of cross-sections to give you a sense of the scale of this opportunity that we are pursuing. What we've been talking about through the majority of this presentation has been our success in the South Lokichar Basin and the drilling results from 2012 and beyond in Ngamia and Twiga. And then we've extended that success by moving out onto the eastern flank of the South Lokichar Basin with a success at Etuko. 2014, we are going to move to the oil rig to the South Kerio basins, here we can carry on that success with a number of wells over in the South Kerio Basin. And to build on that, move into the North Kerio Basin to replicate its success and move that success through the rift basin series.

Looking to the North, there's also opportunity to the north of South Lokichar Basin to the North Lokichar Basin with wells there, Tausi-1 well next year 2014. Then jumping across to Turkwel Basin in 2015, but before doing that we will be going up to the Turkana Basin, North Turkana Basin, and drilling there in 2014 some key wells, some oil seats to pursue in that area too, so an exciting potential. And then this year Sabisa-1 in the South Omo Basin where we had oil shows and then finally the Chew Bahir Basin, that is two basins with Chew Bahir, North Chew Bahir and South, and with some very exciting amplitude supported prospectivity in that basin. So you get a sense of the scale of the opportunity from this series of slides and as Aidan mentioned, the last time the industry was on the brink of an opportunity set like this on rift basins was in the 60s when the North Sea rift basin sequence was opened up. So Tullow is in a very commanding position, high equity commanding position, over the whole basin system, the whole province.

So just in close, we don't get to be in these privileged positions to be sitting on top of petroleum potential, petroleum provinces without taking wildcat risks and we don't get to these special places without having a balanced approach to exploration and spreading our exploration risks across a portfolio of activity, but what we can be sure is from that portfolio of activity we will be delivering, as we have been, 200 million barrels of oil mean resources per annum. So with that, I'll just hand over to Aidan for conclusions.

Aidan Heavey

Not much more else to say before we open up then to questions but I think we are pretty happy with the shape of the business, we are pretty happy with the prospects and we are pretty happy with the way the business is going. And I mentioned this on various roadshows we've had around with some of you guys, and the big real challenge is how do you value our business and we manage the business in a very different way from the way this business is analyzed by the investment community, which tends to be on a well by well basis and on an asset by asset basis, but that's not how we look at the business, that's not how we manage it, and we manage it much more on a portfolio basis. So we are looking at our targets and we are looking at the way that we assess how we are doing as a business, it is very different from the way that you guys would look at the valuations.

So I think we struggle ourselves to find out how Tullow should be valued, and we'll be much more focused unless we get down to business and you guys a lot smarter than me, I couldn't do your jobs, and also I joke with some of you that [indiscernible] useless, and this is not the case, but it's just a fact that how you find a way that actually matches more the way that we run the business and it is a different type of business, there is no other business out there the same as Tullow. There's a lot of oil companies out there, there's a lot of exploration companies but actually no company out there that actually does it the way that we do it and the subtle changes in the way that we manage our business, and I think the challenge is really to find a mechanism for actually looking at how the business then is valued and then how we are performing against that, and I'm not sure how that can be achieved. But anyway, we'll leave it at that and open up to the floor.

Question-and-Answer Session

Theepan Jothilingam - Nomura

It's Theepan Jothilingam from Nomura. Firstly on Kenya actually three or four questions please. Angus, in your comments when you talked about East Africa and Guyan basins, so in terms of the South Lokichar, if you could sort of conceptualize where we are in terms of the P50 run in terms of your expectations for the basin, and I know you talked about 300 million barrels or in excess of that, seems like a P10 could be 1.7 if you think about [indiscernible], so what should the market really think in terms of how [play would] (ph) would derisk in this basin today? Secondly just in terms of drilling efficiency, I think there's been some criticism in the market that these wells have been more expensive and taken longer to drill, so wanted to know whether you see sort of a immediate improvement on that in the coming months? And then just lastly, I guess there is an opportunity for the government to back it and I wanted to know what you thought in terms of timing and is it really a carry from Tullow and its partner and therefore does that put any constraints on the levels of activity if your partner can't actually fund the drilling program?

Angus McCoss

Theepan, I'll handle this. The first part of the question around the volume estimates in South Lokichar, the numbers we're giving are well in excess of 300 million barrels for the three wells, this is a mean value, and our guidance for a typical East African basin is against our only yardstick we have at the moment which is Lake Albert Basin which is a 1.7 billion barrels discovery, and everything that we have drilled and done in the South Lokichar Basin so far has been better than anything we ever did at the beginning of the Uganda campaign. So that's a positive. So not working our way up to the Lake Albert Basin position, it was a struggle, we are jumping up to those volumes pretty quickly. I mean for instance the – which is a good omen, it bodes well for the ultimate size of the basin, and for instance the Ngamia net pay after testing was demonstrated to be 200 metres. The biggest net pay we've ever got in Uganda is about 45 metres to 50 metres. So this a very material basin.

Paul McDade

Then to fund the drilling efficiency, I mean we need to kind of recognize we are in a pretty remote location and logistics are pretty tough out there especially drilling the first one or two wells, and especially the well costs when you look at them holistically because when we take the well cost, we can have added the overheads and the logistics [that are never] (ph) associated with the wells. So those added wells are taking quite a big burden in terms of costs, certainly one thing, and as you bring more rigs in that, the whole logistical cost is spread over a bigger campaign, by its nature then reduces the individual well cost, it's something that is going to happen.

I think the other thing is our ability to drill the wells, we elected to use water-based muds that was not driven by performance, drilling efficiency performance, it was driven by environmental considerations. We learned some lessons in Uganda that if you go in early, make sure you bounce or you've got to mind your cuttings, and you bring out these wells, we're in process of environmental area, so until you get on the sandy area, try and bounce off drilling efficiency in an environmental performance, and that's what we've been doing in the early wells.

And frankly in this last well Etuko we've continued to evolve the mud and the drilling and well performance has been much better in Etuko and are about to keep the hole in shape, et cetera, which actually speeds up the well. And you much rather drill these wells that are kind of synthetic oil based mud which again is something that we are actually progressing in parallel looking at this, that then brings environmental challenges and the social challenges and what you've got to do is take your time to work out how you are going to mind those. So that's something that is going to go in parallel.

And then I guess when we go into these first couple of wells and you're bringing contractors with you, you make no promises about the campaigns, so contracting costs tends to be quite high, and again another lesson we learnt from Uganda, what we've done here is, after the initial wells, we've just gone out and re-tendered all of our services and actually we're looking at tendering for rigs and replacing rigs, so really moving off one well, two well type cost base from a service perspective to a three year contract, and there are some pretty dramatic savings when you look at the service components that we see in those wells as we enact [the same] (ph) contract. So, yes, I mean we will see a very strong earnings curve and cost curve in terms of well by well as we work our way through this campaign. That's just the nature of the area we're in, we're not setting in the North Sea where everything is around us.

I think in terms of the government of Kenya backing, I mean do you have backing rights and there's various contracts and they vary slightly but that will generally be – I mean it is very important to recognize declaration of commerciality to be a different thing to what we are talking about the acreages, we're just acknowledging that in excess of 300 million barrels we are going to develop this area in some shape or form. As Angus said, there's a lot more to come So we're not declaring commerciality deal, we're just acknowledging that, and generally government backing will come out with that declaration of commerciality, so we don't see it impacting the pace for Tullow.

Brendan Warn - Jeffries

It's Brendan Warn from Jeffries. Just two questions if I may, just first question on the TEN farm-down process, can you give us an update or make some comments just on either ring fencing or separation of the TEN field from the Jubilee, and I noticed you show that it is now different parts on Slide 27, and just as we move towards free cash flow, if you can just comment on the increases of CapEx, whether you're going to see costing or CapEx increases at your group level? And the second question I guess for Angus, just in terms of your understanding of Etuko well results in the basin's flank play, can you just talk about the materiality of that play concept to Kenya for other basins, just the risks around and how situational is that in position to environment?

Ian Springett

Brendan, on the first part what we are trying to do is, we've talked about this somewhat with the government, is to actually have two U.S. operating units within the deepwater tunnelised vessel, one effect will be really for the TEN field and one will be for the balance of Jubilee. So that's this whole mechanism where we have to more simply kind of split the activities.

As regards CapEx, we will give you sort of CapEx forecast with the full-year results but our CapEx certainly will be managing Angus' exploration appraisal CapEx around $1 billion obviously with the farm-down activity, but our D&O CapEx we'll manage to actually below levels currently. So I don't see a lot of need for any CapEx increase, and in fact over time we will be looking to decrease it.

Angus McCoss

Then on the significance of the Etuko well reserve, clearly as I showed in my graphic on the cross section, it takes the play away from the String of Pearls on the west side on the basin across to the rift flank, the shallower section of the rift basin. That's the same setting in which we had a lot of success in Uganda and with the plays up in the Butiaba area now in Block 1 the TOTAL operated area and in the northern part of Block 2 in Uganda with Tullow operating there, and that's where the bulk of the volume ultimately came from, as the basin flank play in Uganda. It's already in place with one well there, so we really can't extrapolate too larger from it. And I think comparing the three wells so far, Ngamia is clearly the best drilled of the three so far but is still a very little well count to be able to make any sensible forecast, so at the moment maybe 50-50 in terms of volumes on the flank and volumes on the parallels.

And then to take the next next step to try and forecast how that might split in the undrilled basins, I think it's just too far for us, so we will first of all try and open those spacings, and when we make the basin opening well, what we try to do is maximize the chance of encountering oil. So the model where the kitchen is likely to be, we use these integrated technologies including these ambient sources and to try and minimize the risk of these basin opening while capturing and then we will start to split the basin into flanks and early foreplays.

Michael Alsford - Citigroup

Good morning. This is Michael Alsford from Citi. I've got one quick question which is on the French Guiana, could you talk a little bit about what you have actually booked in terms of contingent resources for Zaedyus today, and perhaps on that basis, why you decided to go for the final well in the campaign as what looks like a delineation of what you have already discovered, and on that basis, does that mean that the partnership group feels that there is commercial volumes and sufficient time to pin the development of Zaedyus today, and if not, again why go for that well and not go for further exploration upside? And just a follow on Kenya, just sort of comments on the discussions earlier on in Kenya, you've always mentioned early production in Uganda, how different is this Kenya and why are you confident on potentially the early production in Kenya, and given it's quite remote, how do you feel comfortable with 2016 as a potential first oil that it makes?

Angus McCoss

For us putting a number out of my head for the resource, we'll get back to on this community as quickly as we can on that number, but what I can say is this is a modest number, a sensible number booked on the French Guiana Zaedyus-1 well. The logic for drilling the next well, GM-ES-5, is one that's being worked up by the joint venture which is driven by the reservoir engineering principles to measure the pressure of the water and the water leg, a down-dip from Zaedyus-1, and with that data to then establish oil levels or oil water contact between oil found and Zaedyus-1, and what we expect to be a water leg in the position, a GM-ES-5 will be drilled. The well will also penetrate undrilled section, so there is an opportunity for some surrounding activity there, but our guidance is to see this as very much a technical well to try and establish oil water contact in Zaedyus-1.

Once the rig is moved away from GM-ES-5, then I think that's a great opportunity for the venture to sit together and look at the campaign, the results, and obviously they are off to a cutting start with the Tullow operated Zaedyus-1 discovery taking Jubilee play across and finding 72 metres of net oil pay, and upon prognosis and then thereafter, with a newly established joint venture we're then able to follow up on that success. We believe that much of that has to do with the locations, the precise locations at which the wells were placed in that campaign and we look at the three 3D seismic surveys that have been acquired and over the big giant Cingulata fan system, one to the Northwest certainly by the eastern slope, and one down here near the Brazilian border, and these three seismic surveys have shown and continue to show considerable prospectivity, undrilled prospectivity. So, we see very little impact actually from the locations of these wells on the remaining prospectivity, so keen to work at our best exploration program going forward, it will be great but we're taking time on that one.

But meanwhile, from a Tullow perspective, what we are doing is focusing midterm on our total operated acreage in Suriname. Similar geography, similar plays, we've got a tracking 3D survey on our Block 47 high equity 70% Tullow, Staatsolie is a partner there, and we are in control of the exploration strategy and the prospectivity. So we are hopeful for success and follow-up from Zaedyus-1 but it may come in the midterm through our exploration in Suriname.

Paul McDade

I think on the Kenya item, Kenya Uganda and the comparison, I think they made in news but the political and business environment in those two countries is dramatically different, I think that's one big factor. In Uganda we did work quite hard to trying to get some early production going and really for various political, bureaucratic and another as well as remote regions we never quite got it going, we do have quite a lot of tanks sitting there in the field for the oil, we've never really been able to mobilize that oil for various reasons, I think we're not saying today that we have all the solutions to get our production going in Kenya but when we stand back and look at Kenya as an environment, I mean a good example is on [indiscernible] certain pickup on it but the area of interest, and there is early, I mean in Uganda we have to work our way through the stage field process for every individual field we make a discovery, we don't have to appraise, we don't have to declare commercial, and these fields are not commercial in the run rate, they are commercial because of the whole package of fields.

We went in and spoke about that to the Kenyan government and proposed that what we should do is the areas, the foreground area that Angus talked about in the Lokichar, we should declare that as an area of interest and work on exploration appraisal campaign for that area and kind of then go in and declare the area commercial ultimately, and we saw that as a very practical way forward, and that wasn't exactly contemplated in the PSC but it didn't contradicted and they see that, as a government, that makes life much more efficient so let's do it that way. So you are doing that with quite a different side.

I think when we get down to engagement with the government, I think they will be very enthusiastic to work with us to look for ways and opportunities to get average production going, there's a roadway there which is being upgraded and is importing these sort of volumes from Mombasa to Eldoret, so there's no reason physically the volumes can go the other way, and there are some challenges around the road infrastructure up in that part of the world, but again that is something that can be resolved pretty swiftly if there's a desire to do so. So we think the environment is right and as we've already told you about the challenges, and there are some, but we are going to go after the challenges and I think we are doing that in strong partnership with the government when we get to sit down and talk to them about it.

Aidan Heavey

Maybe I'll just make one further comment on French Guiana just slightly more on a controversial line. We have different views on how to explore it in these areas and I think, you've heard it or not, the wells were right or not, I think our assessment of French Guiana and the prospectivity there, I think we will wait until the wells and the prospects are drilled, that we will drill, before we will really have a new judgment but this is really a good area in my knowledge, and I think our approach as an explorer is to find as much oil as we can, and I think we do not have the voting rights to dictate where wells are drilled, something we will learn from the future.

Michael Alsford - Citigroup

Right, 20 questions for you. It's just one strategic question, you're a very diverse company, very large company, you clearly like operating, do you think now is the time to be more aggressive in restructuring and essentially get rid of everything you tend to operate?

Aidan Heavey

I think we continually learn and I think we have made a lot of mistakes over the years, we have gotten into things we shouldn't have gotten into, and one thing that we have learned is that we have learned is that when it comes to exploration, if you are an exploration focused business and you do things in a particular way and you are better off in operations, and I don't think in any new basin in the future that we get into that we will give up the operatorship. I think Kenya is the best example. We are going to operate into Kenya and if we were still in French Guiana, operating it, I think we would have drilled different wells, we may not have any better results but we would have a different approach.

So I think what we are looking at is a business where [we can't do all things beyond] (ph) that we don't to be and we don't want to be in the midstream or downstream, we want to be an upstream company, and the areas that we are focusing on I think we are very fortunate that we have two fantastic areas, in West Africa and in East Africa, and the teams that we have can easily manage that and it will be spread out but we have to think twice about it, and I know a lot of our shareholders were a bit nervous about Tullow getting to be, manpower ways, to spread our operations. But if you have a very big and focused exploration team, which we have, and some of the major oil companies do not have they have more development type teams, and if you deliver money, and so it's a balance between them. I think that's something that we have to look at going forward. So I think our tendency right now is if we get valuable assets, we'll find out how to operate it.

Paul McDade

I think a thing to just add to that, on the operational capability point of view, actually the exploration campaigns we can operate them without any great expansion to the Company, we can actually efficiently operate quite a number of exploration campaigns. It's when you come to the development, you have to be much more selective about which of the developments you are going to operate. Again the West African portfolio as I mentioned is we have quite a lot of subsurface influence in that but we don't operate any of it, and it has been incredibly successful and I think we've played a part in that success since 2004, 2005, so I think operatorship, as Aidan says, very important in exploration and we can manage that very easily without any great expansion to Tullow and we just have to be careful when we get to that development point that we carefully select, because that's when you do get a large increase in scale in terms of numbers of people, so we just need to be selective at that point.

Michael Alsford - Citigroup

Coming back to the development of the East African section, now you're talking to – or about to talk to the Kenyan government, it seems that the different partners have different agendas and so on, so how do you ensure that everyone is aligned here, do you need to realign the different stakeholders into these, I mean can you maintain that 50% state that you have in Kenya before you push forward?

Aidan Heavey

First of all on the 50% in Kenya, we will keep the 50% in Kenya, we have a fantastic position there and this is, it's not cheap exploration but it's reasonably cheap compared to the offshore exploration, and how we link in with the other areas, as Paul was saying, there are pipeline studies currently going on, the lab stat study there before we found oil in Kenya where the Kenyan government was working with Ethiopia on sudden slowdown on a pipelines system. The presidents have all agreed on the pipeline and the Kenyan side is, it's a pretty straightforward pipeline. Now we're not going to build in pipeline, this is not a Tullow work, we're not midstream or downstream, but there is enough interest there from companies who are currently trying to get involved in that. So we see a pipeline infrastructure there and a pipeline business, this is a third-party business, and all the governments are brought in to it and I think that will be [somebody's allergy] (ph) pretty quickly.

Paul McDade

I think you're right, but again, eventually on this the pawn has been – I mean the pawnors are very aligned in Uganda with the partnership which is very aligned on we need to have an export pipe going and we've now got to that point where there's full agreement on that partnership, and Kenya is very aligned on the exploration importance and pursuing the RFPs but also considering early development, so we have got good alignment in both places, and I think the earlier advantage that Tullow has, and I think that some of the skills that Tullow brings is having a foot in each account and then managing say the politics and bringing those two countries together and helping them put in place a regional plan, and I think that sort of thing brings us close and I think it's good. In Uganda, we don't have the whole burden of development, I mean we've got two big companies there who will be doing that very major part of that development. So again back to the previous point, you've got to be selective. When you get to that scale, you don't want to be doing that major development in Uganda, that can make complexity, on your own. So I think the pace of that movement is good and I think there is strong alignment actually across the region.

Rahim Karim - Barclays

Rahim Karim from Barclays. Let me just take a second, maybe building in the North Atlantic part of the business, just wondering if there's anything that you'd like to comment on around the integration process with Spring, how that's gone, whether it's gone to plan here and where you might be able to see upside from when you first made that move? And then second, it might be a little bit early but you made some interesting comments, Angus, around Greenland, whether you can shed any more light on that at this stage?

Angus McCoss

I got the Greenland question, but the first…

Aidan Heavey

First question was just around Spring, the integration, how that's going?

Angus McCoss

Alright, okay. It's going very well. We've talked to our philosophy of – on a personal basis an observation that Spring is working very well, they have a very efficient, a very effective management team, a very efficient and effective exploration capability, so our philosophy has been really to let that capability grow and run and to integrate in a very transitional collaborative and we made a lot of progress on that integration and there is a lot of genuine goodwill about bringing these capabilities of Tullow and Spring Energy together, so all in all a very positive process underway, but again a gradual and understanding process, mutually understanding process. It's leading to a campaign that we see ahead of us, particularly we're seeing with Mantra, and the Kuro was ahead of us, so we see how it delivers in terms of exploration performance, but a lot of those prospects were obviously set up by Spring. But looking forward, we are working with them on the new lands, building up acreage positions and using the capability of Tullow and the group exploration capability. So it is very much a collaborative in-field process going forward.

And then on the other question, Greenland, Greenland acreage which we share with Maersk Oil, 3D survey has been acquired and it has identified a very large prospect which we currently assess at about 1 billion barrels potential. This is a prospect that we are not trying to commit to drill, we have a drilling decision ahead of us and we are currently reviewing our options for extracting value from that prospect that we've revealed through the 3D seismic. We're not ruling out any options going forward.

Thomas Adolff - Credit Suisse

Thomas Adolff from Credit Suisse. One question on Uganda and one on TEN please. Just on Uganda, what's your base case for FID and is it at that point you look to further farm-down your equity stake across the three blocks and what's the ideal equity position in Uganda? Second question is on TEN, obviously the first phase will commercialize about 300 million barrels of oil and gas, of which 80% is oil, 80 kbd oil capacity with additional upside for a potential partner that comes into farm into TEN, so from an NOC's perspective, buying 20% will give an NOC 16 kbd of equity coverage which doesn't seem very big. So what's really the selling point of the TEN asset?

Paul McDade

I'll take the Uganda one and leave Angus to take the TEN. On the FID in Uganda, as you very much know, we are working towards kind of mid-2014, 2015 kind of FID in Uganda, I mean that's very much into Kenya and we'll move the two in parallel, so that [indiscernible]. With respect to farm-down, I think our focus is on – we had one value point where we went down 400% [indiscernible] we'll recognize this as we go forward but we have another value point in terms of should we reduce our activity further at that point and that's kind of around FID. And another thing, we don't have a view yet what ideal FID levels offers because I think what we need to do is assess what it all looks like in FID. So I think as Aidan said at the very beginning, we're not in any rush to do anything, we get to the FID, we look at the Uganda plus Kenya together, what the combined entity looks like, our equities on both places, and then we sit down and we assess what's right for Tullow, but there's not a real point in time to second guess that at the moment, but we do see that as the next big value point.

Aidan Heavey

The only thing that I will say is that if you look at the strategy, we have a financing package and that's what we stick with and the level of farm-down that we have and the level of development carried is dependent on that. So we don't bear outside that.

Angus McCoss

Okay and taking this question on TEN, I mean I think certainly the farm-in will be both to the project that has currently specified the 300 plus the upside as well and obviously the wide discovery in [indiscernible] in kind of in that acreage. I think that as Aidan said, this is an attractive project, so as we to folks in the early marketing, access to Ghana, stable country, people sometimes also see this as the beginning of a relationship with Tullow in terms of the future as well, and a lot of companies are very interested right now in acquiring assets which are on their way to production, and certainly as you said, sort of going on NOC perspective, a lot of desire to achieve reserves in production. So we are seeing that demand.

Andrew Whittock - Liberum Capital

Andrew Whittock from Liberum. Are you really thinking that you'll get the money from Heritage within the next month and could you just talk through any accounting issues that we should be aware of? And just one detail, what's the guidance for the tax rate in the second half of this year, what should we be [indiscernible]?

Ian Springett

On Heritage, it's relatively straightforward Andrew that the judges ruled that Heritage will pay us the $283 million absolutely as quickly as possible and we're in the process of putting in place the arrangements for that release from the different bank account, and then they should pay the balance $60 million in terms of interest and costs by the 26th of August, those are the rulings. Heritage does have the right to appeal the judgment but not appeal the payment of the money. So that's how that's gone and that's how it's got to work. I'm not sure actually what your question was about the accounting issues, what you meant there.

Andrew Whittock - Liberum Capital

[indiscernible] cash yield was essentially with the [indiscernible].

Ian Springett

Right, so good news there, cash in, and so the exact accounting, debit cash credit debtor.

Thomas Martin - Canaccord Adams

Thomas Martin from Canaccord. Can I ask Angus a couple of questions on Kenya I'm afraid on the exploration side? You have this big net payout risk after testing on first two wells, have you got zones excluded from the net pay estimate on Etuko pending testing or have you applied the learnings in the current published net pay estimates? And secondly, you spoke about the very thick net pay for today versus Uganda, appreciate you on the three wells in, but what would you need to see to start thinking about basin potential perhaps even beyond what you had in Uganda?

Angus McCoss

If you read the text or the announcement on Etuko, you'll see that we are talking of a potential net pay we will be production testing and the reason we say that, that is the additional 50 metres in the lower lacunae and the previous announcement was the 40 metres of oil pay in the upper lacunae sands and the sands in the lacunae shale. That hasn't clearly defined the net oil pay with oil recovered to surface, so that was clear. And the slight hesitation at the moment around the pay, 50 metres pay in the lower lacunae, we're calling it potential net pay, is because we have learned from the similar formation in Ngamia and in Twiga South that that requires fluid testing to come over to more accurate pay tally. But we were successful in Ngamia and in Twiga South, we have closed this unit at 200 million barrels of oil per day, the lower lacunae isn't the number one reservoir in the basin however and the upper lacunae sands and the sands in the lacunae shale are the better reservoirs.

But the interesting observation is that we are finding over a kilometre of oil bearing sands in these wells and this is a much bigger growth oil bearing integral that we have ever seen before. So in Uganda, you might get 45 metres, 50 metres net pay in the best well and the biggest Tullow's oil bearing integral might be 200 metres. Here we are seeing a gross oil bearing that was over a kilometre and that is the cut there, the play interval down there and we are working with clear, prolific sure-shot because we were able to charge the String of Pearls play and the Basin Flank play to a matter of over a kilometre of oil bearing section on both sides of the basin.

So it does have a potential bigger than the Lake Albert Basin but we haven't been able to prove that or establish that yet. So the guidance at the moment is just, consider this our rule, our yardstick for the basin in East Africa so far is the only one we know well and that's Uganda and that's 1.7. So that is the only yardstick for the moment, but there's room for a lot in Kenya.

James Thompson - JP Morgan Cazenove

This is James Thompson from JP Morgan. Very quickly from me, just want to clarify one thing from earlier actually, in terms of the 300 million barrels in the first three wells or in excess of that, is the [PME] (ph) in excess of 300 million barrels or is it 300 million barrels in those three, and if it's the latter and I could pin you down on a number, what would be the kind of P something for that 300 million barrels? And just very quickly as well, I saw on the chart there is a prospect called Ngamia West, is that a new play type within these spaces, it sorts of sits out with the kind of String of Pearls on there and just wanted to get more detail on that? Thanks very much.

Angus McCoss

No, in excess of 300 million barrels is a P mean statement, so it is more than 300. We're just not going to be too precise of it at the moment. And it is built up from Ngamia and Twiga average of 250 plus, plus the Etuko result I guess as to something well above 300 million barrels. That's all we're going to say at the moment. And the Ngamia West prospect is essentially Ngamia up and closer to the basin bonding fault and so as we locate these wells, and in the absence of too much data, as was the case when we drilled Ngamia and the Twiga South, you have to take a view on how far away from the basin bonding fault you go. So you go several kilometres into the basin before starting to drill your well, but in doing so you leave asset forever, if you like, inboard between the well and the basin binding fault. So Ngamia West is one of those sorts of targets in between the well and the basin binding fault. So it's part of the String of Pearls family.

Brian Gallagher - Investec Securities

Brian Gallagher from Investec. You mentioned that you discussed the TEN farm-down process with Kenyan governments. How do you discuss tax at all in that discussion?

Angus McCoss

There are no taxes

Anish Kapadia - Tudor Pickering

It's Anish Kapadia from Tudor Pickering Holt. Got a question on relooking at the production outlook over the next years and the cash flow impact, and it looks like production next year will be around the 70,000, 75,000 barrels a day mark with production staying flat it seems until 2017 when you see a roundup from a number of projects, just wanted to kind of clarify that, understand what the cash flow impact will be between 2014 and 2016, whether that is going to be flat or declining due to PSC or IRR threshold impacts? And just also on the production side, just wondering what you'd expect in terms of potential first oil timing from Zaedyus and from Paon if successful in those two countries?

Paul McDade

[indiscernible] mention in the room, I mean yes, as we have guided, the intent is to sell some of the lower value barrels, I mean Asia is 5,000 barrels a day, so in terms of percentage of production that we've produced, a reasonable percentage is going to be 4% and in terms of revenue it is miniscule. Again in the North Sea, when one takes in account the investment you have to make to kind of run to standstill kind of net revenue position, so we are taking off a material amount of production but you are not necessarily taking off a material amount of revenue. So the predominant revenue generators are the West African assets which we think we can certainly sustain through 2014, 2015 and towards 2016, [we certainly go out] (ph) find the keystone relatively stable through 2013, 2014, 2015, moving beyond that at the moment and Jubilee may again will stay stable throughout [indiscernible] result. So when we need to make a decision today, rest of Asia and the Southern North Sea was very much gone on the basis that we saw those two key areas being sufficient to fund the exploration campaigns looking forward.

Angus McCoss

I think [indiscernible] and you also should have TEN coming onstream in the middle of 2016 and we're not seeing – yes, of course there's a full year of Jubilee but in the numbers it would be same. The numbers [indiscernible] from 2014, we also get a full year of Jubilee in the sense of it producing a cascading results of somewhat ramping up in 2013, and there will be some offset in terms of PSC impact I'm sure, but overall I would say, it's flat to increasing.

Anish Kapadia - Tudor Pickering

The Zaedyus?

Paul McDade

I don't think we have a view, we yet form a view of the kind of resources and potential results, et cetera, and once we do that, then we'll form a view, but kind of pending. I think the key things that we look on kind of in the medium-term [indiscernible] TEN coming in, in 2016, that's the core addition and high-value addition. There's some other less material things around that we are looking at in the same timeframe but they are not particularly high-value items, and obviously as we started talking to look at East Africa, there was a question in our mind that clearly pipeline volumes, which will be very significant are properly owned 2018 and beyond. But in Kenya, we are starting to look and say, could you have kind of production and revenue from Kenya in the shorter term. Now we don't know the answer to that but that is something we are actively looking at.

Muna Muleya - Merrion Capital

It's Muna Muleya from Merrion Capital. Two questions really, one is on Sierra Leone you said is under review, what do you think your options there are quite in terms of that, and then in Kenya acreage position, is there a point where the government says your excess position in Kenya is too large and therefore it must be divested away?

Angus McCoss

On Sierra Leone, we put that in the context of they plan to extend the Jubilee play ground to West African Transform margin and what we proved in that campaign was that the sweet spot in that play is in Ghana and the play deteriorate, if you like, as you go towards Sierra Leone, but we've got some good seismic there, we've got some well controlled well data, we see value in the acreage., we see value in studying the acreage with our commitments fulfilled, so we are in no rush to make hasty decisions about Sierra Leone position. But in the shorter term, we are focusing on the opportunities in Guinea where we see a step change in that trend and we do think that there's a real credible opportunity to target a Jubilee type prospect in Guinea. So the greater West African Transform margin play is very much alive, as I was saying in the way we think about campaigns, the campaigns have to evolve, they have to adapt to how it comes to well results, and you have to build on the data and build on the successes but also build on the dry holes.

Then in the Kenyan acreage position, in our view, and we believe that's a view shared by all of our stakeholders, is as long as we continue to perform and deliver the results, delivered against what we have committed to do and to exceed, those promises in terms of delivery and in terms of social performance and environmental performance not only in terms of exploration results and then we consider to take the view that our acreage position is really sized for us and it is something that we are entrusted to execute the exploration campaigns as a contractor for the government. So it is a position that we respect and it's one that we value and we will, and maintain our – intend to maintain our tenureship of that position through delivering on our commitments and exceeding our promises.

Aidan Heavey

I think we're finished with all the questions in the room. Can we just see if there are any additional questions on the conference call please?

Operator

We will now take our next question from Ritesh Gaggar of GMP. Please go ahead.

Ritesh Gaggar - GMP

Just two questions please, first one on Kenya in terms of relevance for the significant resource upside, I mean at this point of time it's still early days and the focus remains on the South Lokichar Basin, but as we highlighted in the presentation, there are seven other rift basins that you can target, can you comment on the maturity of these basins relative to the South Lokichar in terms of geological understanding and possibly any drilling? My second question is on Ghana, can you please provide some details on the progress made regarding your discussions with the government on the gas export facilities, do you think gas flaring will be an issue in terms of any exports and could it possibly impact production in 2014?

Angus McCoss

Just on the distribution of the upside in the Kenyan rift basins, it is stable. There are at least eight basins out there and the first one we've drilled, this South Lokichar Basin, has been successful and that was a campaign we started in 2012 and we're drilling in the east flank of the South Lokichar Basin this year with a two holes success, and next year 2014, we'll be drilling in the South Kerio Basin, the North Kerio Basin, the North Lokichar Basin, and the Turkana, North Turkana Basin systems, and we'll also be drilling in Ethiopia in the South Omo and the Chew Bahir here basins. And that's all on top of the drilling of the South Lokichar Basin.

So until we have those well wildcat results coming in during the course of the next 18 to 24 months, it is difficult, around to impossible, for us to meaningfully rank the upsides between these different basin areas. And as I said here, the best way to look at it is from a portfolio point of view, from a scenario point of view, we know that one of these basins works could cut three more works, entirely possible, could cut five more work, entirely possible, and we just have to drill the wells and get the results. We'll keep you posted.

Paul McDade

Just on the Ghana gas export, there's kind of two aspects concerned, one is the kind of loss of value in Ghana. I mean I think that a lot of expectation is about what the gas could do to the economy and the industrial power, and cost of power, et cetera, so the government is losing out on that due to the delays, and we have been in dialog, as you could expect, continuously around the gas exports even if it has been delayed a number of times. Current estimate is early next year for the gas export start-up. And because of that, that additional delay, as I mentioned in the slides, we decided to just continue to be in the short-term decoupled from that gas export and was basically tired in following gas injection well. We've been putting a lot more gas in the reservoirs and we anticipate it, and the two wells that we have, we feel definitely the need to spread that load into front load. So that will be drilled eminently and will be available for injections and we expect that to be able to pay for gas production as we kind of ramp up the field to avoid flaring to maintain production, and it continues to be a concern from both aspects in terms of the availability of another route to evacuate gas, and then just on kind of loss to Ghana prospective.

Operator

We will now take our next question from [indiscernible]. Please go ahead.

Unidentified Analyst

Just one question for you, Angus, regarding operatorship, I just want to understand how you balance your desire and strategy to be operator of deepwater exploration acreage in frontier basins with an exploration which is of like a $1 billion per annum. I suppose I could imagine that if you now look into the operator upper deepwater, expenses and acreage, your budget could get used up fairly quickly, and I'm wondering when your exploration budgets actually expand beyond the originally envisaged $1 billion per annum figure that you see as feasible cost?

Angus McCoss

I'll start answering that question for you, [Karen] (ph), firstly on the budget, we are going to stick to delivering 200 million barrels of oil equivalent per annum from $1 billion per annum invested. So you're right, then we have to work with that, and adapt our strategies to get the right balance between the various campaigns, some of which are offshore and in shallow water, some of which are offshore in deepwater, and some of which are onshore. Of the six campaigns, clearly the Kenya and Ethiopia one are in the front.

So going forward, it's going to get slightly loading on resourcing and in terms of manpower talent and capital, but we are still active in the offshore arena and there is a slight shift in our strategy from deepwater to shallow water, so we gradually accumulate in shallow water acreage positions, still in pursuit of deepwater plays but looking for deepwater plays which can be accessed, sort of fossil deepwater plays, from current shallow water settings. So that's an adaptation to the paradigm and responding to the challenges in deepwater costs and complexities.

But we still will have some deepwater exploration in our portfolio amount to look at that very, very carefully because you're right, it's a hard cost activity but we are still as an important part of our strategy trying to find another Jubilee because we see the importance of Jubilee in the revenue profile for the Group, and to have another Jubilee type field, world-class deepwater field will be a great prize and we're trying to terribly get that from either Mauritania, Guinea or Suriname and Guiana. So they are the frontrunners to deliver some other Jubilee.

Ian Springett

I think obviously I'll mention it from a CFO and budgeting and funding perspective, I mean we are pretty much learning organization I think and so our bias is I think to operate wherever we can the exploration phase. At the same time, as we set out with our strategy after the annual results, our intent is to spend around $1 billion per annum on exploration appraisal, and I think therefore the outcome of that is that sort of Angus and team will manage within those sorts of parameters to develop of course the next territory here.

Unidentified Analyst

Okay, thanks, that's helpful.

Operator

We will now take our next question from Gerry Hennigan of Goodbody. Please go ahead.

Gerry Hennigan - Goodbody

Just going back to French Guiana for a minute, to make a [indiscernible] diversion to view some other product [indiscernible] what if anything can you give to change the dynamic and any event that the partners keep drilling more along their lines more than yours, what options might you consider at that point in time?

Aidan Heavey

Buy them out.

Gerry Hennigan - Goodbody

Alright.

Angus McCoss

Part of that option, we've got time to think coming up there, it's after GM-ES-5 rig goes on, and we've got five holes in the ground and three 3D seismic surveys, so this is a period of reflection and data integration and leveraging all that, the new knowledge that we have, and that will also give us time to reassess how the joint venture has performed as a team and to have some pretty frank discussions in the venture. Record for a Q&A session, and so with that, now I'll just hand over to Aidan for final comments.

Aidan Heavey

I think we've had enough questions. Thank you all from me.

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