Tullow Oil's (TUWLF) CEO Aidan Heavey on Q2 2014 Results - Earnings Call Transcript

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Tullow Oil Plc (OTCPK:TUWLF) Q2 2014 Earnings Conference Call July 30, 2014 10:00 AM ET


Aidan Heavey – CEO

Ian Springett – CFO

Paul McDade – COO

Angus McCoss – Director, Exploration


Jamie Maddock – Morgan Stanley

Andrew Whittock – Liberum Capital

Brendan Warn – BMO

Michael Alsford – Citigroup

Caren Crowley – Davy Stockbrokers

Theepan Jothilingam – Nomura

Thomas Adolff – Credit Suisse

James Thompson – JPMorgan

Thomas Martin – Canaccord Adams

Sanjeev Bahl – Numis Securities

Gerry Hennigan – Goodbody Stockbrokers

Anish Kapadia – Tudor Pickering

Aidan Heavey

Good morning and welcome to the Half Yearly Results Presentation. I know we’ve done a Capital Markets Day only few weeks ago so there is not a huge amount of new information in here. But really what I want to do is just go through some of the progress that we’ve made over the last six months in West Africa in particular one of the key areas is Jubilee and as you are all kind of aware we were – had issues in the delay at the gas plant. But it hasn’t affected our production for the first six months of the year and we’re still on track for maintaining our target of 100,000 barrels on a day from Jubilee in second six months of the year and the government have made progress with the gas plant and we expect that to be functioning in the fourth quarter of this year.

And the TEN project which is a major project, is about a third complete and it’s on track and on budget and so we see no problem in that and first oil in 2016 as planned. And then the West African production as Paul will go through has been very, very solid the first six months of the year and discoveries like the new discovery we’ve just had in Gabon will help to maintain that for years to come. East Africa and again we’ve had some good discoveries in the South at the Lokichar basin and that’s helped to underpin the development plans that we’ve had for Northern Kenya. And we’ve a very aggressive and program going forward which Angus will take you through.

And on the development front we signed in February the MoU with the Ugandan government and we’ve been working very closely now with the Ugandan government and the Kenyan government to move the project far as quickly as possible. And we expect FID in 2015-’16. So very good progress and everybody seems to be co-operating incredibly well to get this project moving.

On the corporate side and we have sold some of our assets last year. We obviously sold Bangladesh. We still haven’t completed the sale of the Pakistan assets, so we’re waiting for the government approval. We have sold some of the UK assets. We have some very good offers now in place for the remainder of the European assets and we hope to have deals closed in the second half of this year.

And those sales process, those effect the comparison to the numbers, obviously the financial numbers and one of the key things going forward and we’ve talked about it on the Capital Markets Day is the strength for balance sheet. One of the things at Tullow is a very strong and reverse balance sheet and that was strengthened last year and this year with the bond issues. The cash flow is very important to us and Paul will obviously take you through those but the key producing assets in West Africa which are core we average around 66,000 barrels of oil a day has been very, very strong and that is where the bulk of our cash flow comes from, that’s where our high margin production comes from.

And the other assets, the UK assets and we had some issues with some of the fields which Paul will take you through. So I think overall it’s just basically steady as she goes. It’s been a very solid progress through the main assets in the first six months of the year and we’ve a very good exploration program for the second six months.

I will now hand over to Ian who will take you through some of the numbers.

Ian Springett

Thanks Aidan and good morning, ladies and gentlemen. We’ll start out with a quick look at strategy and the funding implications of how we deliver that strategy. From production and cash flow perspective we continue to deliver solid high margin production, that more than funds our exploration program, funds our taxes and our dividends and our interest costs. And in future of course we plan to see seriously investment that cash flow in production when the TEN project comes on stream and also we continue then with an operating efficiency and in time in the future with our goals in East Africa.

From an exploration perspective, second green bullet there, we had significant success in the last couple of years with onshore rift basin and going forward we plan to further high grade our activities shifting the emphasis somewhat away from deep water and plan for more cost effective annual exploration spend more in the range of $600 million to $800 million per annum and Angus will talk about that more a bit later.

From a portfolio management perspective we continue to progress our agenda on portfolio management as Aidan talked about, perhaps not quickly as originally expected in tough markets but the objective nevertheless remains to exit less strategic more mature assets, such as Bangladesh and North Sea in the shorter term and to trim our equity on certain future developments, for example TEN currently.

On major projects we’re making good progress there. The TEN project is both on time and on budget, which is very good from a sort of a funding perspective. And with first oil and revenue from that expected in the first half or mid-2016. From East African perspective the major development spend for that will not occur till after 2016.

On the balance sheet in the meantime, it was very hard as Aidan said to diversify and strengthen our balance sheet. We issued a $650 million bond back in November, second bond in March and we’ve extended our corporate facility to $750 million also in March. And recently we also took our LCs, our letter of credit which were previously embedded in our corporate RVL facility and we took those out to separate facility giving some $300 million additional RVL capacity. So overall a very solid cash flow which enables us to execute on our strategy despite difficult market conditions [found] on exploration license and development assets. So good, very good shape from a sort of cash flow and funding perspective.

Looking at our half year results, two or three main themes here, I think. First of all solid delivery of sales revenue of gross profit and cash generated from operations, very much in-line with expectations and indeed when you add back the portfolio activity, Bangladesh and some temporary deferred production in the Gabon then our results in the first half of ‘14 are virtually identical to those of first half of ‘13.

Secondly, we have obviously a loss after tax and that’s been impacted really by two main things; the first being the high level of exploration write-offs, some $226 million higher in total than the first half of 2013. And Angus will talk a bit more to that. But also loss on disposal which actually is connected with Uganda and two other ones which we disclosed in the trading statements around contingent consideration and relate to a license payment. So those impacts gave us a loss after tax.

Also about from a debt perspective our net debt is $2.8 billion. But our headroom is $2.3 billion. I’ll explain later why we do not expect our headroom to decrease in the second half of the year. So expect $2.3 billion headroom to be maintained actually to 31st of December and I’ll explain why in a second. Source and use of funds, usual chart here. I think important to explain some of the moving parts though.

So our cash inflow is $728 million which is less than the $905 million we have in the first page for cash inflow, cash from operations. The reason being simply working capital differences, purely timing differences and largely around liftings in Ghana, milestone payments, payments in advance for the work done in Uganda and also our [progress]. So it’s really just the timing thing there.

At the same time our cash outflows in the first half of 2014 in terms of taxes in particular, a bit high normal because actually we have certain payments to certain government for taxes which are first half based if you like. So the annual payment is in the first half. And also our dividend payments the second dividend the eight pence a share, on the four pence a share was paid in the first half of the full year. And then by contrast our significant Norway tax repayment is received in the second half of the year rather than the first. So which means on debt draw down of $944 million is higher than you kind of might expect this and much higher than you have on the annualized basis.

In fact when we take our debt facility at around $2.3 billion then our forecast as I said before is that we have $2.3 billion of headroom at the 30h of June, $300 million of extra debt capacity by taking the LC out of the debt facility and we think that the year-end headwind will still be $2.3 billion, so only $300 million quarter and second half.

A slide we used at the Capital Market Day and I think important to reiterate the significant work we’ve done to strengthen our balance sheet. We’ve built up a lot of debt capacity. Our debt capacity has also being termed out. We don’t expect to use that debt capacity but it’s good to have that in terms of ensuring we diversify our funding sources and give us the headroom and financial strength.

In that I think it’s important that in this space last six months or so we’ve opened up a new source of debt with the bond market. Then say given how cash flows are front-end loaded in the first half, we do expect about $2.3 billion facility to be maintained. What we’ve done with the LCs effectively is that they were in debt facility. We now have the financial capacity because of the performance of the Jubilee field, as we got that financial capacity it made sense to pay the LCs out. And actually in doing that not only we’ve taken out the $300 million of headroom but we’ve also saved about $2.5 million of interest cost per annum which is actually good move to make. So a good place to be.

Capital expenditure our current forecast is $2.1 billion for 2014. I think clearly by year-end that probably will approach $2 billion. And I think it’s important to recognize that we allocate that capital based on the opportunity set in front of us. That capital allocation is very much on those opportunities that add the most value and we have a very disciplined approach to our overall levels of capital spend. We think it’s particularly important in current markets.

Angus will to some what we said before about the change in emphasis of exploration spend away from deepwater, frontier activity and more towards areas where we have already had success. Less reliance on farming down license entry positions. As I said that means our exploration spend, we think will be more than $600 million to $800 million range in 2015 and beyond. And we see that appropriate in today’s marketplace and really a respectable level of D&O spend.

So the – and if you look at chart, the split between E&A spend, development spend, it really doesn’t vary overtime. If we extend this chart further back and look to sort 2009-2010 it would look – when Jubilee was under development then it would look very much like what we have in 2014. So really the split is all about – as I say it’s value based and we choose to spend our money according to market conditions and the opportunities in front of us.

So finally on financial performance overall and highlights with financial performance I talked about revenue cash flow particularly from our core West African production, our balance sheet has been simply strengthened. What that means is certainly and with portfolio management the ongoing TEN farm down we’re in a very good position. It’s allowed our desire to farm down TEN but we don’t have to if we don’t want to, we have such a strong balance sheet and good solid cash flow.

On that basis we’ve into a good position from a cash flow perspective, so strong balance sheet and good prospects for the future. So with that, I’ll hand over to Paul.

Paul McDade

Thanks Ian. Good morning. I think as Aidan mentioned we made significant progress across all the operations in the first half of 2014. And I think as you saw the capital market the team we have at Tullow’s is pretty strong and pretty deep and I think that’s why we just continue to make progress across all the operations.

If I go into the detail again just mention we continue focus heavily on health and safety, security, the sustainability aspects of our business and our operations which are kind of fundamental to our reputation as a well-respected operator and also that provides the basis in terms of our license to operate. So we don’t talk about it a lot here but that underpins what we do talk about, again as you know is pretty important to what we do.

I mean as Aidan mentioned core production continues to perform and deliver very significant cash flow. There’s a lot of growth in the portfolio, which we’ll talk about and also the non-core assets we’re well underway in terms of getting them – the business and refocusing, making sure they are not [inaudible] capital and refocusing teams onto the core assets.

With respect to production, West African production is on track. The full year guidance remains 64 to 68. All we’ve done is narrowed the guidance slightly as we get into the second half of the year. The real doubt on the first half versus the second half of West Africa is really just around Gabon. As we mentioned before we got some licenses which were in discussions around with the government which means they were not booked in the production for those in the first half. We will book that in the second half. So there will be over – there is an under booking on production in the first half and there will be an overbooking of production in the second half. So really that’s why full year guidance is on track. And the portfolio as I show you is working well.

In the North Sea I think in the trading there we have [inaudible] up. We got one or two wells in the North Sea portfolio which are not performing well. And based on the full year guidance is down about 2,000 barrels a day from what we said at the beginning of the year. And I am guiding about 13,000, 14,000 for the full year. I have separated out – for the first time we shown this, we’ve separated out the West African core portfolio with the kind of obviously the North Sea production which assets kind of held for sale. They are in the process of divestment.

And couple of things really just one – I mean there is a big difference between the margins and the value of these [inaudible] versus the Boes which is – so it’s important to get that transparency. But more importantly as we go through – as Aidan mentioned the deal with Faroe we will be complete some-time in the third, fourth quarter. We announced the sale of Brage, the non-core production in Norway. We’re well advanced in the negotiations with one of the parties in Netherlands. So as we go through the next 18 months we would hope that, that 13,000-14,000 barrels a day will decline to zero.

So really what we want to do is use the West African production basis, that we are focused on for cash flow and then that’s we’ll be building and measure it against. So I think it’s appropriate to show this going forward. So let me get move on and talk about some of the areas and the boxes here which are going to provide the future growth.

If we look at Ghana, I mean Jubilee is strong in the first half 103,000 barrels a day and we’re on track for 100,000 barrels a day over the full year. The area we talk a lot about is the gas plant, that we need to be there to explore gas too. That hasn’t impacted us in the first half. We’ve met our targets. But as we go into the second half we now expect that gas plant to start taking probably some commissioning gas in the third quarter and we expect it to be up and running and operational by the fourth quarter. So that’s kind of the stage where we’re just close to basically making the connections and starting to flow some commissioning gas and then assuming smooth commissioning. We should see the gas plant up and running and starting to take material volumes of gas in the fourth quarter.

And again, we mentioned before in the meantime the gas is being disposed through both injection and very limited flaring. So that gas plant being in place and operational will then allow us to get back and focus on to utilizing the full capacity of the FPA working on the de-bottlenecking of the FPA. So some of this stuff we’ll show it to you at the Capital Markets Day in 2015.

The other big area of focus which again we talked just on the Capital Markets Day is to Full field development of Jubilee. There is a long way to go in Jubilee in terms of exploiting the resources that are on the ground. And if you look at the pie charts which are used it shows you that with Jubilee Oil we only produced around 10% of the potential of that field to date. So there’s a long way to go and a lot of cash flow still to focus on.

As regard to TEN, it’s on track on budget for a target of mid-2016 and the project today is about 30% complete and by year-end we expect it to be about 50% complete. Eight of the 10 wells that we’ll have available for start-up have already been drilled and the recent well – the wells that we drilled as we’ve highlighted have come in pretty well. And so this is looking good and we just get two further wells to drill and then we’ll move on to completion of those wells.

The FPSO is making good progress and Jurong Shipyard in Singapore. I think we have cut off the front end and ready to prepare that for the target being applied. So that’s making very good progress and then the area of local content, which is important for this project we’ve really made some big significant advances over and above what we are able to achieve in Jubilee. So – that maybe is not important in terms of the number we are talking about here. It is very important with regard to relationship with Ghana. I mean because you find in Ghana if you look at the press a lot of the focus is not necessarily on the 80,000 barrels a day, it’s on the local content that we are pursuing at the moment and we are making very good progress on that.

So I mean again if you look at the scale of the business we’ve got over 2 billion barrels of BOE to play for and if you consider that we were only 5% of the way through the potential resource plays within Ghana.

Looking at the other – I mean, again it was good at the Capital Markets Day with the opportunity to kind of go through in a little bit more detail the rest of the West African portfolio, how important that is in many dimensions and the whole portfolio effect of those assets and you can see from the side and the statement basically there’s a continued activity ongoing which is all focus as we said about keeping those assets our own 30,000 barrels a day or above as we look into the future which builds on that foundation cash flow and production.

And overall when you combine those West African assets with Jubilee, we are coming just shy of $2 billion of pretax tax operating cash flow and then when TEN comes on stream we have effectively got a regional business of net 100,000 barrels a day with the potential to exceed that and add $2.5 billion to the operating cash flow businesses. So it’s a kind of major regional business in West Africa.

If we move to East Africa where we are really focused on building a second kind of major regional full cycle business you know the resources flowing to-date have the potential gross of 300,000 barrels a day or thereabout and we have currently focused at the moment in Kenya on the E&A activity that Angus will talk about. We got the four rigs, running continuous improvement there in terms of making progress on those wells and important well test and are well focused on appraisal with the discoveries and preparing for the development of South Lokichar as well as the base opening activities there and Angus will go in to in a bit more detail.

In terms of the development, the timing is coming together. We signed the MOU with the government of Uganda earlier this year which clearly defines an export pipeline as a key part of the overall development and acknowledges that if there is refinery it will be limited to around 300,000 barrels a day in initial stage. We have seen the government of Uganda get much more pro-active around the pipeline and there’s been quite a lot of bilateral talks between the government of Kenya and the government of Uganda around how interface with the two sections of that regional pipeline the Kenya section and the Uganda section.

So that’s really good and really what we are finding is the Ugandan JV, Kenyan JV and the two government are now all pretty aligned on getting progress to as early as possible for startup. So I see there is a lot more to come from Kenya in terms of upside. And Angus will flag that but already we have the basis of major second regional business in East Africa.

To sum it up really as Aidan stated good progress across all aspects of the business and in the first-half and again just as important in terms of progressing assets are core is to divest the assets that are non-core and I said the Faroe deal is going to complete later in the year. The sale of our non-core production in Norway has been signed and SP has been signed and we are close to signing the first ASPA in the Dutch assets.

So with that I’ll hand over to Angus.

Angus McCoss

Okay, good morning everybody. Just like to start with a summary of the results in the first-half of the year from the exploration and appraisal. Clearly we continue to be able to find out our own oil and ‘14 successful results there in listed there in green, three technical discoveries in dry holes. Amongst the 14 success that we have had we have six new oil accumulations, three in east Africa and Kenya, Ewoi, Amosing and Ekunyuk. A new well that we are announcing today a new discovery at Igongo in Gabon in West Africa and the couple of success in North Atlantic at Hanssen and Vincent, new discoveries there.

On the dry hole side of note there perhaps the Agete-2 appraisal result is the new piece of information for you. That was an appraisal well we drilled in Kenya which was a little bit bold and went outside the bounds of the field and drilled the – but nonetheless helps us to find the final size of that accumulation and then Tapendar as we previously advised was a dry hole, an important for us in Mauritanian this helped us to shift our emphasis and exploration which I am going to explain in the next few slides.

But overall it’s a cost effective way to add feedstock to Tullow and continues to create value for the company. We approach exploration as through campaigns. This allows to hedge the annual variability of our performance. Just a little bit more on the campaign approach to exploration. If you look at the bottom left hand corner of this slide you see we start off with our exploration business, development our new ventures in Africa and the Atlantic, opening new frontiers, starting with big concepts, big geology, big ideas but based on our geological data bases on our knowhow knowledge and expertise in our business networks in Africa and the Atlantic.

We then apply a value test the value filter and select which frontier play we proceed with. So moving up the green arrow to the blue box there in the middle. We test our frontier plays and our basins. Again as I said applying our exploration campaigns hedge and phase the risks and we adapt to the outcomes the results that we get from drilling. The deduce size and outcomes but also adapt to the business environment and I’ll talk about a bit more in a moment particularly in this high cost environment we have particularly for the ultradeep water and the complex wells. So we adapt to those feedbacks.

Nonetheless we have do success in opening new frontiers ever two or three years we have opened, a new basin, opened Ghana and Kenya and Uganda. We are opening these basins in significant new areas over two or three years. But some of these tests will fail and then will retire those campaigns down into bottom hand corner of this diagram. That allows us to refocus. We will not retire the campaigns if they are overly complex or overly costly if they land up with a sub economic results are simply because there is no oil there.

But many of the successes have led us to move forward up the curve particularly as I said in Uganda and in Gahanna and now in Kenya. Again they pass this value test, we move on and take them forward into the core campaigns up in that green box in the top right hand corner, where we have our high success rates in the July phase where we have had up to 80% success rates in Uganda and Ghana and now enjoying those levels of success in July phase in Kenya in the South Lokichar basin.

And we get feedback from the successes too. It’s not just feedback from the dry holes but where we are having success we build on that knowledge and put that information back into the new ventures, back into exploration business development, so that we can build on those successes and ultimately monetize our science, monetize our discoveries to add value through that new oil we find for Tullow.

So that was a bit on the campaign approach. A little bit more detail on the campaigns and they fall into these categories, that on the left side there our focus on exploration business development in Africa and the Atlantic, opening new frontiers for oil and we review typically a 100 opportunities a year, but only 3% of those will get through. So it’s a pretty ruthless screening and screening on value principally, is their oil there but also a serious look at the non-technical risks involved. So very ruthless screening program going on there.

We look to invest about 10% of our CapEx going forward in that sort of activity and as Ian mentioned earlier, going forward, we’ll be looking at investing about $600 million to $800 million in the total exploration and appraisal program whereas last of couple of years we’ve been more at the $1 billion level.

Moving to the middle of the diagram, the frontier campaigns, these are the campaigns that generate the future core campaigns. These are the higher risk activities we’re undertaking them in South Atlantic in Uruguay and Namibia, in the Guyana’s margin in French Guiana, Suriname and Guyana and also the Central Atlantic margins particularly, [Mortinia] and Guinea. We look to invest going forward about 25% of our exploration CapEx in that sort of activity. That is the part of the activity program that we would to farm down, look for caries. That’s tricky at the moment in the state of the market. The farmer market is saturated, the [date rooms] are full across the industry. So that has been a challenge of late, but it remains our intent to dilute our exposures in the frontier riskier campaigns.

But as I said we have successes from the strategy and every two or three years it delivers a new core area for us to focus on in the green right hand side of this diagram, our core areas in East African river basins where we are having considerable success internally. North Atlantic Continental Shelf focused around Norway and success we had there in Barents Sea, I’ll come on that more in a minute. And of course the West African margin where we’ve had success in Ghana and look for other opportunities in that area.

We intend to spend about 65% of our exploration CapEx in that area. But again as we move from left to right across this diagram we’re applying that value test, we are saying is this a value adding opportunity for us to take forward to a higher level of investment.

This slide for those of you have at Capital Markets Day will remember us briefing on the shift of emphasis within the exploration portfolio of Tullow. And basically it’s a left to right shift in these geological settings. Basically on the left part of this diagram tends to be more complex more costly and the shift has generally been away from well complexity towards little complexity and thus lower cost and lower exposure. I do want to emphasize that point that is to do with well complexity and well cost and the exposure of these wells rather than say deepwater per se. I mean there is there is some very high value opportunities in Jubilee type settings where we’ve lot of experience in drilling in Jubilee deepwater conditions and deepwater geology. So it’s not really a deepwater thing per se it’s avoiding the complex high exposure activities.

And so very clear shift of emphasis. We are able to make this shift because of our large portfolio and also the large size of our licenses. We don’t have postage stamp licenses in proven provinces. We have large licenses in which we can move and adapt to the business and farm and adapt to the well results.

These three slides now before I end on the some of the core activities that we’re investing in the moment. Kenya, Ethiopia, really hot campaign for us, on the brink of opening world class oil province here, parallel approach focus two scales, one at the South Lokichar basin scale where we had a lot of success so far with drilling out that basin appraisal and testing it. We discovered about 600 million barrels of oil pmean gross resources. Flow tests have been good with confirmed good productivity, a high success rate on the wildcats. And we got wells drilling, Etom-1 is drilling at the North end of the basin at the moment and Ekosowan-1 will spud in the fourth quarter.

On the frontier exploration side in Kenya we will be testing more of these basins. We have an inventory of about a dozen basins. So as I said one of them is pretty intensively drilled out, as you see on this map, with South Lokichar a success. But we’re pursuing these other basins. How many more of these basins are petroleum basins? Perhaps three or four of these dozen basins are petroleum basins and that will be a great way to multiply the success that we enjoyed so far. But it’s not playing sailings as frontier exploration comes with risks. And in the Chew Bahir Basin in Ethiopia we find large signals of volcanic rocks in the lake basin there.

On the [chart] we move through the inventory of basins and we looking forward to drilling in the Kerio Central Basin with Kodos well, the Epir well and the North Kerio basin and Engomo well will test the Turkana North west basin, all in this year. So some exciting basin testing wildcats coming up. And in 2015 five more sub-basins to be tested; a total of eight new basins to tested in the next 18 months.

In the North Atlantic and Norway, really three areas to look at, the two themes – the Barents Seas, Norwegian Sea and the North Sea are the three areas but the two themes here really are frontier exploration in the Barents Sea where we’ve had some good success, major find of Wisting, backing that up with the discovery of Hanssen. So that western cluster is coming together as we target that potential of 500 million barrels in the western cluster.

In the Norwegian Sea and the North Sea are newer infrastructure exploration, hasn’t been so successful. There what we’re doing is drilling in a more mature area, trying to crack open the new plays and the sub-plays and amongst the infrastructure. The attraction of exploring in there of course is the ease of commercializing discoveries and of course the rebate of 78% encourages us, incentivizes us to explore in that area. But being a more mature area it does come with risks associated with that.

West Africa, our focus is on near field exploration in our producing heart lands. Top right hand corner there the focus is on the extending on plateaus, production plateaus near infrastructure exploration in Ghana and Gabon where we’ve made Igongo discovery which we announcing today and you see the diagram on the left hand side, the size Echira Field, 90 meters of net hydrocarbon pay. This is a field which is typical in size of those on shore Gabon and maximum field size in that area is around 50 million barrels. So it’s not a giant discovery, but what’s good about this is its new oil in a producing heart land. So all the fields around the [boat] are typically 20 years old and this is new oil in the midst of infrastructure. So very high value discovery.

We’re also doing frontier exploration though in amongst these producing heart lands in offshore. This year we’ll be drilling – in fact this week we’ll spud the Sputnik Well, which is a large material presalt target. You see there, we’re targeting Sandstone reservoir beneath this boat, and this play is broadly related to the carbonate presalt in Brazil and Angola. But here in Gabon we expect the reservoirs to be sandstones. It’s actually a well-established play onshore in Gabon. As you see from the top left hand figure this play is already established in onshore Gabon.

So just as a wrap there, the highlights, good progress in year-to-date with the some successful, 14 successful wells. We are on track, we are on progress, we are aiming for that 200 million barrels average year. We continue to add value to the portfolio. We execute strategy in a campaign approach which allows us to hedge the annual variability, allows us to phase the risk of the various campaigns and allows us to focus on that operational delivery through the campaign approach.

I have mentioned this shift of emphasis. The shift of emphasis is towards our high value, lower cost onshore campaigns which are proving very successful and the lower complexity offshore opportunities to maximize value. And finally much more to come in 2014 and beyond. This year we’ve got three basin opening wildcats in Kenya, we’ve got Sputnik well Offshore Gabon and several other wells coming up in the next year in Norway. So a lot to look forward to and good results so far. So with that, thank you. I’ll hand over it to Aidan.

Aidan Heavey

Thanks Angus. I think just to go straight in to questions. I think really what we show it’s steady progress. We’ve got good solid business, the strategy is working. We know the market is a bit quiet. It’s suffering from boredom and it needs some activities somewhere to get it moving again. But I think we have a very solid business and we keep delivering on our core strategy. I’ll hand it over to questions.

Question-and-Answer Session

Unidentified Corporate Participant

To ask a question could we just have one question per person to start with please.

Jamie Maddock – Morgan Stanley

Thank you, Jamie from Morgan Stanley. With regards to the $600 million to $800 million that you set for the revised exploration budget, how has that number been determined? I recall I seemed to think you had a risk estimate goal for resource addition per year and that was based upon an average finding cost. I just want to think about how you set that number and what variables have going in to it. Thanks.

Aidan Heavey

Jamie, one of the key things we consider is the opportunity set. We’ve certainly no shortage of opportunities. What we have found so from our frontier campaigns is that most successful campaigns have fortuitously been in our lower cost environment. So that’s where we are focusing. So we kind of landed on our feet and of the frontier campaigns that we undertook, the ones that do best are actually the lower cost ones. So that allows us to bring our cost down. This just happens to fit with the where we are in the industry and where we are in the life cycle of making investment choices between exploration and development.

So it’s quite fortuitous actually that we made the breakthrough in Kenya particularly.

Andrew Whittock – Liberum Capital

Andrew Whittock from Liberum. Ian, I just wondered if you could say something about the Ugandan capital tax issue? And I mainly interested in the sort of timing of any payments Tullow might have to make. Should we expect anything ahead of the completion of arbitration proceeding for example?

Ian Springett

I think Andrew on Ugandan and clearly we’ve only just received the result of the tax tribunal. We don’t agree with the result. We are filing to have and also appeal both the tribunal and Ugandan Court and also stay in terms of potential international arbitration as well. I think our view remains very strongly that we’ve paid $142 million originally back in 2012. We think that’s more than enough in terms of what we believe our liabilities are. So our view is this matter will get resolved over time. But it’s – and it really depends upon whether we come to some form of negotiated settlement with the government or whether we go to arbitration.

But our strong view and the legal opinion we have is that the principal elements of this we have a very strong case.

Aidan Heavey

I think first day on that was this morning and we won that, so. That’s postponed even further.

Brendan Warn – BMO

Good morning, this is Brendan Warn from BMO. Just one question, but just in two parts, just with TEN and the farm down when do you get to a point where you draw a line under the farm down process? And just in terms of net debt gearing or EBIDTA interest coverage for 2015, you were very clear 2014, under a full carrier of TEN where would gearing EBIDTA interest coverage go to?

Ian Springett

I think our view remains that whilst farming down TEN is consistent with our strategy and our preferred outcome we intend to manage our business to enable TEN to either to farmed down or stay with our level of [appetite] whichever is the best result from a value perspective. As we said we continue to be in negotiations with interested parties. I think our view certainly is that for every day that progresses TEN looks better and better, it’s on time, it’s on budget. And so this isn’t a decision that we have to farm down. The decision doesn’t make sense to farm down and just from a kind of overall funding and concentration perspective, yeah it makes sense but it’s not absolutely essential.

The other thing is that we will as we do our business planning for ‘15, ‘16 beyond we will manage our capital very closely with reference to what we think the appropriate level of net debt to EBIDTA is to that period and that will incorporate being comfortable with an appropriate level of net debt-to-EBIDTA with and without TEN.

Michael Alsford – Citigroup

Thanks. It’s Michael from Citi. I just have couple of questions around the same theme. Just on, I guess Kenya program so my guess is no new news today. Could you talk about I guess the implication on volumes for Agete and isn’t it – in terms of structure? And if there read across or any concern around migration north to Etom? And more specifically on Etom, it looks like they are large feature when you look at on the map, it only carries 20 million barrels or so pre-drill estimate for Etom. So could you may be square that circle for that me?

And really how we bridge the gap from what’s being discovered in terms of Kenya, you talk about just over 600 million barrels and getting to a 1 billion barrels in the Lokichar. How do we get there if Etom looks like the larger feature you haven’t drilled yet, and it’s only 20 million barrels? Thanks.

Aidan Heavey

Okay. First on Agete, as I mentioned earlier really what happened there was a build-out dip on board appraisal well and that landed in the water leg. Also we try and drill as few appraisal wells as possible and that means pushing these appraisal locations to the limit. In this case it was a first one that stepped beyond the [inaudible]. And so I we wouldn’t read too much in to that, it’s more down just to the location of that well.

The Etom trap is an important one from, as you picked out, from an oil charge perspective. The question mark really is has oil managed to migrate all the way up in to that north corner of the basin and a similar question sits around the undrilled Ekosowan-1 prospect in the far south of the basin. So Etom and Ekosowan-1 are the last wells to be drilled on the current prospect inventory, in the extreme north and extreme south of the basin. What we do find is that the tips of these basins, extreme north and extreme south there’s quite a lot of floating that’s quite complex.

At the moment we’re acquiring a 3D seismic survey from the far south end all the way up towards the north. And we are finding that seismic is incredibly valuable in defining the full patterns and defining the prospects. And that’s really helping with the appraisal program and it will be instrumental and fundamental to the development. But so far so good, it’s looking good but we won’t have the final process interpreted results really in until next year but so far so looking good.

So I really can’t add much more texture to the shape and size of the globe of the map, globe of Etom at the moment. That definition is improving as we acquire more and more data. But overall what we feel is from the – all of the exploration wells and the appraisal wells to date we are still sitting at around about 600 million barrel mean discovered and some of the wells like Agete-2 have come in little bit of a negative but others have been more positive. And we just postulating around that 600 million barrel. So we’re keeping steady on our guidance.

So your other question is then where does the upside come from? The upside is still always there above the mean and because that guidance of 600 is the mean value. We may find that some of our outboard appraisal wells and we only really drilled Agete and Ngamia-3 which we mentioned as outboard wells. So most of the appraisal wells so far have been up that and I’m looking for the edge against the basin binding fault. So there is a lot of upside to come in drilling outboard and down depth, we’ve been able to push these all water compacts deeper. So that’s one source of the potential and the upside.

The other one is that we are getting hints of some interest in new plays and there’s some evidence coming in of stratigraphic trapping potential as we suspected we might see. And so our seismic interpreters are working with that data. They work within the 3D and that’s why we feel we can still mention the building barrel number which is sort of typical upside for an East African tertiary space. But I would emphasize it is an upside is unproven but there are ways to get there through expert appraisal and new plays.

Caren Crowley – Davy Stockbrokers

Good morning gentlemen. Caren Crowley from Davy. I was wondering if you could update us on your current thinking with regard to your South America portfolio given the shift away from complex high cost exploration?

Aidan Heavey

Yeah, I mean the Guyanas are absolutely one of our frontier campaigns and they’ve been lot of focused, particularly our operated activities in Suriname but also our Block 31 opportunity with in Impex in Suriname is coming up. We have proven that there is oil in these basins. We know that the Suriname basin on the west side of the Demerara Plateau has oil in it and we know that the French Guiana basin has oil in it. We find 72 meters of [Payn] and Zaedyus-1.

So the industry is at very, very early stage of frontier exploration in these basins and we have got commanding acreage position and it’s really quite enviable position to have in a new oil basin such large acreage positions and opportunities in our license set which allow us to adapt to that cost environment. So we are able to move within our license set into the shallow water lower cost less over pressured, less complex well setting.

And that’ really where the focus is at the moment. So it’s that shift of emphasis that I talked about from a globalized expression point of view is particularly relevant in the Guyanas. And so we are able to leverage the discoveries and knowledge we have from the basin that take on these plays in a lower cost in setting.

Theepan Jothilingam – Nomura

Good morning. It’s Theepan from Nomura. One, sort of just observation and then one question actually, but I was interested in your view. I think you’ve talked about the farm out market being saturated, the [SN] market being relatively difficult but I was just wondering whether there was a case as a potential seller you should be thinking about – to do those, whether on the asset side you would had some production to TEN from Jubilee or when you look to switch on formats on the licenses maybe to stake in onshore East Africa pre-drill.

Then the question actually on onshore East Africa, just in terms of looking at new basins, could you just talk about the risk and characterizing the differences in risk on Kerio Central, Kerio Northern, Turkana Northwest, would there be any sort of reprieve from either the three well results there? Thank you.

Aidan Heavey

I think on the, I understand on Angus can take the second part, on the first part Theepan, I think that as Paul indicated we were very clear I think on the value of our West Africa production how important that is to us and I think we don’t have any current plans around farming down in East Africa. So I think again back to the point that whilst we like to trim our portfolio in part that isn’t essential and I think by giving away some of stuff we cover to do that isn’t necessary how we see it. So all of these things are part of mix and foretold, but I think our view right now is to sort of farm down TEN in the way we are farming down TEN and I think any other conversations East Africa and other conversations.

Angus McCoss

Theepan, on the relative risk of the basins, these 12 basins that we have in the portfolio in Kenya and Ethiopia, clearly the basins that are closest to the South Lokichar Basin are likely to have had more similar environments and we know that during the Miocene when these sediments were deposited there was a humid environment conducive to lakes developing and lakes were the key to the play. If we have lakes there is good chance we have lake sediments which includes rich source rocks and we certainly find that in South Lokichar. We have a 200 meter thick rich source rock which is absolutely world class starting point for any basin.

And obviously the basins are closest to South Lokichar would tend to be likely to have a similar environment and so obviously the Kerio basin would be less risky say than the North Turkana Basin at this juncture. But obviously the wells will help to clarify that current interpretation.

Theepan Jothilingam – Nomura

[Question Inaudible].

Angus McCoss

Well we’ve only really had two Chew Bahir wells would fall into that category, I think because the South Omo wells, [inaudible] and a lot of shale. The Chew Bahir two wells here Gardim and Shimela we found a lake basin, we find the lake shales that the lavas had flowed into the lakes and occupied much of the space in the basin. So that obviously decreased the prospectivity. So unfortunately without a well in a basin if we are the first to drill a well in the basin we are going to be the ones who find that out. But that’s the risk we take on.

But we know from South Lokichar, we know from Lake Alba that two out of these 12 basins are highly prospective and highly petroliferous and we’ve really only scratched the surface of this basin system and there is a lot to play for. And we think on an expectation basis it’s a fair chance of three or four of these basins coming in. And so we do believe we are on the brink of opening a new oil province.

Thomas Adolff – Credit Suisse

Good morning. It’s Thomas Adolff from Credit Suisse. Paul you talked about lower local content on TEN, and obviously a lower local content is what the industry is looking for helps with CapEx control, it helps with the timing. I wondered whether you can elaborate on the local content in terms of activity and man hour reduction for TEN versus Jubilee on a like-for-like basis.

And a quick one on TEN, on the disposal, I’m wondering because you have been talking with potentially interested partners for some time now whether they’re happy with the structure of the deal, is it 20% enough for them or do they actually want a higher stake or they want a higher stake and also stake in Jubilee, i.e. something from the entire Ghana portfolio? Thank you.

Paul McDade

Sorry Thomas, there was a confusion there on local content. I think the point I was making normally clearly was within Ghana local content is a key feature and a key area for Ghana with regard to the project and actually what we’ve managed to do in TEN without any impact on the CapEx has actually significantly increased local content on the TEN project and so what was relatively forward there was some commentary that maybe Ghana because it moved so quickly maybe Ghana was slow a little bit in terms of maximizing local content.

So we’ve been very conscious to ensure that where possible. I mean offshore projects are difficult to maximize local content because you got a big FPSO, a lot of sophisticated kit, subsea, but where possibilities have been there we have looked at maximizing work force and our contractors have done a good job of actually maximizing the local content, again with minimum impact to CapEx all in our planned budget.

So I guess the point we’re making is that locally if you read the press locally it is a lot [poison] press around local content which again might not be to be an important factor, but is an important factor because what can happen is if locally if they don’t feel that local content is at right level then they can start to impose on reasonable local content regulation which can then have the impact that you’re talking about. So it’s quite an important thing for us to manage within Ghana and get right.

I mean within the TEN I mean you can read my comment as well but within the TEN disposal well, I mean strongly differentiate between the non-core assets, which is quite important that we execute those disposables and because the assets are non-core and the whole focus is on removing them from the portfolio. And we’ve been quite successful in doing that and we are being successful and we’ll continue to be.

I mean within TEN it’s quite a – you got to remove it and see, it’s quite a different a farm down, I mean it’s a core asset to Tullow and we’re just trying to make choices around TEN about what’s the right equity, and what is the right value. So we are quite clear what structure we want in the deal and again back to the comment about Jubilee we’re very happy with our high margin Jubilee production and so we’re clear on TEN, what structure we want and we’ve got a successful project that’s moving forward and being de-risked every day. So it is putting a different count to the core assets, it is quite important that execute it and push out the door.

Aidan Heavey

Thank you and therefore by definition that defines there sorts of people interested in that. And so won’t find a major necessarily interest in taking a 17%, 20% interest in TEN, but nevertheless there are people who are interested in that and our conversations continue and some – overtime there are some people who have been there from the start and we see new people coming in.

James Thompson – JPMorgan

Good morning gentlemen, it’s James Thompson from JPMorgan. Quick question on Kenya and Uganda, I mean first going forward to 2020 about half the group’s production is coming out of those basins and yet at this point of time the only route for that crude to get to market is going to be operated by third parties, built by third parties. I wondered what Tullow’s position was on either taking equity or operatorship or just having an overall project management position of the infrastructure given the risks to the company if that does get delayed?

Aidan Heavey

Yeah I mean I think you’re absolutely right. The piece of pipeline infrastructure is critical to the future commercialization on both Uganda and Kenya but I think what we’re very clear is that the important factors are in the kind of design both in terms of the technical design and then the execution design in terms of the impact locally in terms of the getting rights of ways, in fact getting the right routes of the pipeline and both within Kenya, with Africa Oil, and within Uganda with [inaudible] we are basically we as in terms of the partnerships and Tullow is very much at the heart of that, especially in Kenya, we’re defining the pipeline.

So our overall plan is when we get to sanction we will continue to work the engineering design for that pipeline. So that whenever the conventional structure is put together and if there is a pipeline company of various equities or equity partnership and is put together we will be rooted in that, we’ll ensure of that the pipeline in which the build is the pipeline that we actually acquire and is going to be efficient and effective to the type oil we have and the capacity and the full capacity we have.

So there is not a third partly doing that work at the moment. Actually within Kenya it’s ourselves and within Uganda it’s a combination of ourselves and – Senuc. And that’s also true in terms of the environmental social aspects of where that pipeline routing goes and so we’re kind of progressing that as well. And I think what’s going to happen is we continue to finalizing the conventional structure and the financial structures with the governments. I think when that – we’ll be very well advanced on the first two items.

So it’s more than likely that whatever conventional construct company is put in place and they will than adopt the work that we’ve done and we will of course be involved in some shape or form in the execution of that.

So we – I think of course is the major risk. I think at the momentum we feel like we have a good semblance of control over that major risk and then once the pipeline is in place we will be varied and there’ll be some moving parts in terms of heating and pumping it but it’s not particularly running pipelines is not particularly complex business. So the ability to get high efficiency on the pipeline is not that difficult so that’s current status.

Unidentified Analyst

Hi it’s [inaudible]. I was going to ask a question about the pipeline as well. When are we going to get the next bits of news flow as to when that might move forward in a way that you would de-risk the Ugandan and Kenyan projects?

Aidan Heavey

Yeah I said – I mean the seed components of the pipeline if you think about all the technical design, the concept is complete for the full route and the prefeed is almost complete. We are bit fully advanced in our thinking in Uganda and Kenya but actually those two are tough taken together. So the pre-feed and the pre-feed gives you the basic kind of flow assurance the design, the pumping requirements all the – and when the pre-feed is finished we’re doing some general environmental and social studies.

That becomes very much more specific and you get into kind of right of ways and the SIA submissions once you know the route which will be kind of in the middle of this year and then when we get probably in third-fourth quarter we will actually get into feed and which will then run parallel with the SIA’s. And the next step the feed runs probably for maybe about 12 months so let’s see kind of third quarter ‘14 to third quarter ‘15 and the feed, the result of the feet is the tender packages that you then go out in the market.

So that’s all – there’s no big step on that. It’s just a continuum which is progressing to plan we have the market. So that’s all – there’s no big step on that. It’s just a continuum which is progressing. [Dupont] has almost in Kenya is almost the head of the upstream which is good. It’s where we wanted to be. And then as you would imagine the whole kind of financial and commercial contract is something that as I mentioned what’s really encouraging is there’s been quite a series of meetings between the Uganda and the Kenyan government and their focusing in on the need for as the AC, a regional pipeline that will export Ugandan oil combined with Kenyan oil by a regional pipeline in two parts.

So the Kenyan government will take responsibility for the section within Kenya and the Ugandan government will take responsible for the section within Uganda. And so that’s progressing well. And also on the kind of commercial construct and ownership of what’s likely to be two pipeline companies is kind of ongoing in the vibrant and obviously its confidential. So we’re not really sharing too much of that at the moment to the market.

Thomas Martin – Canaccord Adams

Thomas Martin from Canaccord, on Uganda in relation to the tax management. I wanted to try and understand a bit more about basically how you proceed now. I think your answer is fairly strongly worded. And you’ve given you have stated that you’re gone try and resolve the situation through a discussion in country. What if you are unsuccessful in resolving that situation given the importance of sanctity of contract, all oil and gas companies? Would that effect your plans, pace of progress to proceed with this development project in Uganda and if not, why not?

Paul McDade

I think it’s – and first of all as Aidan stated, good for us that we just heard that the stay has been approved. But I think and sanctity of contracts is very, very important to us. And also this project in Uganda is a very significant, an important project. And I think sanctity of contract is important to us. It’s important to Total. And I think our view is that common sense will prevail.

Angus McCoss

I think all of us are spending the money at the moment. I mean D&A spend is complete. Really the monies we’re spending at the moment are the kind of things I’ve mentioned about feed studies and pre-feed and environmental studies. So they’re not nearly as material as execution spend. And we’ve got kind of 18 months before we get to FID or thereabout, that’s sort of in the early ‘15 then to first half of ‘16.

So absolutely what we said [CNOC] and Total were aligned to the contract, sanctity is critical. So I think we’ve got another period where things can run in parallel. And I think as a partnership we’re very clear this matter needs to be resolved before you sanction that project. But that doesn’t stop us from continuing to get progress towards sanction, so we can run the two in parallel for the period.

Aidan Heavey

Can we see if we got any questions from the conference call please.


Yes. We will now take our first question from Sanjeev Bahl of Numis. please go ahead.

Sanjeev Bahl – Numis Securities

Hi, I just had one question on Gabon. I just wanted to know a bit more about the licenses issue, and why you have the – 3,000 barrels a day of production. And also it sounds like you are making revenues from that particular field, as I think you’ve disclosed the names. But will that continue into the second half if you haven’t resolved the license issues?

Aidan Heavey

Yeah, basically what it is, is we are in the discussion with government over an umbrella license. And really while those discussions are ongoing effectively we are just not able to do the production associated with those licenses. We’ve made very good progress in our discussion. And we are – the fact that we’re forecasting through the year including a full year for the licenses kind of indicates to you that as we think early in the third quarter – or sorry within the third quarter we’ll get that results. We will then kind of then move forward on the licenses and we will retrospectively book the production which we’re not booking at the moment. So we don’t see any material risk there at the moment. So good progress being made in discussions.

And can you repeat, I’m sorry I can’t give the last part of…

Sanjeev Bahl – Numis Securities

Yeah the last part was just with regard to revenues. It sounds like your deferred revenue in the first half. I was just wondering if that would continue in the second half of the year.

Paul McDade

No. So basically did the revenues is the same as the production. So we haven’t booked revenues. But again to one of the points that Aidan was highlighting in terms of like-for-like basis if you would compare, that will be easier on the full year. So we haven’t booked revenue, we haven’t booked production and we haven’t booked obviously the respective revenue for those assets in the first half and likewise we will then see the revenue of the first half flow into the second half.

Sanjeev Bahl – Numis Securities

Okay, thanks.


We will now take our next question from [Mark Wilson] of Jefferies. Please go ahead.

Unidentified Analyst

Yes hello. Just like to ask what is the write-down which would include the exit of [inaudible] and Nigeria. And are there any comments you’d like to make regarding results of that campaign and possibly up to the north, the upcoming Fatala Guinea prospectivity.

Angus McCoss

Mark, I’ll answer the second part of the question and turn to Ian to go through the numbers with you. When I was explaining how our campaign approach is applied to exploration appraisal I referred to these retired campaigns, those are unsuccessful. So this venture falls into that category. So whilst we’re making discoveries we were finding oil in those wells. When we do the asset test on the commercial feasibility of taking those forward and developing them we decided that’s not something we want to focus on. So we retired that campaign.

I would emphasize that’s retiring the campaign means that we are letting those licenses flat. It doesn’t mean necessarily that our country exit and doesn’t necessarily mean a lack of interest in that Jubilee play in West Africa. It’s just that, that particular license that particular venture ran its course. As we move further north to Guinea, we have a large acreage position there and we have some large prospects principally Fatala and Sylli. And they are certainly Jubilee scale prospects they are higher risk with frontier exploration, but they do make it through our very selective screening based on what we have learned about what works and what doesn’t work in the West African transform margin play.

So the Guinea campaign is still very much alive and active and we intent to be drilling there within next the 12 months.

Ian Springett

Mark it’s Ian here. If I heard you correctly the exploration write offs which would relate to these West Africa transform margin area, if you like. I think Syria and – written off in prior periods, the main write-off this time around was in relation to [Cotiwar] which was $56 million.

Unidentified Analyst

And so there isn’t another write down in the second half?

Ian Springett

Now on Cotiwar that sorts it out.

Unidentified Analyst

Okay. Thanks a lot guys.

Aidan Heavey

All right.


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

Gerry Hennigan – Goodbody Stockbrokers

Hi good morning. And can you comment on expectations around the Ugandan refinery in the context of discussions between the Ugandans and Kenyans? And also maybe on operating cost just regionally I know you said operating up – operating cost per barrel for Ghana has trended down over the 12 months or so. Do you think that’s sustainable at that $8.5 a barrel?

Aidan Heavey

Yeah Gerry. In terms of the refinery we watched that process with interest. I think the Ugandans are expecting kind of final bids in from their final two companies. I mean it’s been quite public that there was a shortlist I think of half of dozen and that’s moved down to two and they’re hoping to get kind of finalization on some of that stuff in this quarter. So that’s as much as we know. I mean I think the key aspect for us is around the scale of that refinery and that’s what the MOU is incredibly important, which I define as the 30,000 barrels a day in the first instance.

With respect to the Ghana OpEx, yeah, I mean I think what we should expect to see is certainly the Ghana OpEx be sustained as the kind of current levels. I mean what we’re starting to see is a more stable state on Jubilee. Even Jubilee is actually starting to take a bit of – from TEN because you as imagine within country with those [inaudible] to build capacity to handle the incoming TEN project. And then I would certainly hope as TEN comes on stream in 2016 and then ramps up and is on plateau in 2017, I would hope to be seeing operating cost kind of at or below the current levels all things being equal, as we spread some of our fixed infrastructure and fixed logistics across gross over 200,000 of barrels a day rather than 100 at the moment.

So our OpEx trending with Ghana has got some real potential in terms of value add through reduction.


We will now take our final question from Anish Kapadia of TPH. Please go ahead.

Anish Kapadia – Tudor Pickering

Good morning. I had a question on Norway, your assessment of the acquisition of Spring. When I look at it, you spent around $500 million if you close the expected contingent – of Spring, plus few hundred million dollars on exploration, Mike and you drill down 12 wells, 10 non-commercial with a couple of [inaudible] listing enhancement. So I was just wondering how do you assess that campaign, it seems like you spent quite a lot of money for relatively limited amount of [batteries]. And related to that for the area what kind of size you need for commercial development in that area? Thank you.

Angus McCoss

Hi, Anish, Angus here. Yes, certainly the highlight of the campaign has been the Wisting discovery in the Barents Sea and the follow up success we had there with Hanssen and we look forward to two more wells in that Wisting cluster, Hassel and Bjaaland in the forthcoming period. And what those wells are looking to do is to confirm what we believe to be around $500 million Barrow cluster which is certainly well in excess of the minimal commercial field size even for the Barents Sea.

If we look at the price one might realize in a year to its time on those sorts of barrels you may get about $4 or $5 a barrel and in a transaction looking at a past transactions and discounting for Barents Sea. And we have 20% the amounts to resource potential of about $100 million barrels net to Tullow, a 100 million barrels times $4 or $5 a barrel is $400 million or $500 million of value we see emerging from the success we’re having in the Barents Sea which more less covers the acquisition.

So point forward we have the acquisition behind us and we have the benefit a large acreage position with some great prospectivity in it. But also we have a great team and one other key motives for that acquisition was to incorporate, include the Spring team in Tullow. And they have some excellent scientists and make some excellent North Atlantic commercial experts, so that’s been an important value add to the team.

You’re right that we haven’t had the level of success we had hoped for in the near infrastructure plays. As I highlighted in the presentation coming in Board and drilling an infrastructure plays might reduce costs. But I always like to remind everyone that it still comes with considerable risk because it is a more mature area. And what we’re doing there is looking for new plays, new sub-plays and we know that they can emerge from mature areas. One only has to look at the success of [Wuhan] to be reminded how a clever idea and smart well can completely change the game.

And so we’re looking for those sorts of opportunities in the near infrastructure environment. So it’s early days but we feel that the acquisition is more or less – watch this space with the success we had in Barents Sea.

Aidan Heavey

We have got one more question.

Unidentified Analyst

Hi. David from [Soc Gen]. We’ve talked a lot about today about costs and how strategy has evolved last two years by costs so just as a final question to Angus, just a snapshot so to you Angus on the drilling market and seismic market and how you’re seeing cost there more specifically to pull I suppose on the subsea market and the type of project delays we’ve seen in then a lot projects both onshore and offshore from EPC contractors? Thanks.

Angus McCoss

Well, as you are aware, I and my colleagues here have stood on the platforms recently last year and highlighted the issue of the high cost structure in the industry. But we have not been alone in giving that message. A lot of our colleagues in EP industry have also being giving a similar message and this had a consequence of turning the tide thing on the cost structure in the industry and we are beginning to see that turn.

We’re now beginning to see more rigs of opportunity, more availability on rigs and rig rates coming down, likewise there’s more availability of seismic vessels and so forth. So I think we’re seeing that turn happening at the moment and which is good for our sector.

Paul McDade

I think with respect to the subsea market and FPSO and other the development let’s say associated markets and some of the order books are quite full. And so we’re not seeing any – we’re not in the market. If you look at TEN, TEN was contracted a year ago – we are kind are on that market, I think when you talk to contractors, their view is the order book for today is looking pretty good.

Actually the outlook – I get a sense that they see a softening outlook and so really until we’re back in the market tendering for things maybe in 2015 and then I think we will see some evidence of that softening market but it looks like it’s coming.

I think the subsea infrastructure market will be at the tail end. I mean what you see as Angus says the rigs are always the absolute forefront, they are the first things that you see in a softening market. They are the ones go up and down, react much more quickly with the other things developments are longer scale events. The question is how long is that going to be?

Aidan Heavey

Okay. Thank you very much everybody. If you have any further questions feel free to get [inaudible]. Thank you very much for your time.

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