Tullow Oil said on Wednesday that it sees “significant upside” to its current production target for a key oilfield off the coast of Ghana as the Irish-founded company continues to prepare for a merger with Capricorn Energy.
Tullow said in March that its TEN field, in which it has a 54.8 per cent stake, should be producing 50,000 barrels of oil equivalent per day (boepd) by 2025, up from 33,000 last year. It said it expected production at the neighbouring Jubilee field, in which it has a 38.9 per cent interest, to be at 100,000 by the middle of the decade, up 25 per cent from last year’s figure.
The company increased its interests in the two flagship oilfields earlier this year by exercising pre-emption rights on stakes for a total consideration of $126 million (€125.5m).
Tullow, led by chief executive Rahul Dhir, said in a trading statement that it now had “identified significant upside” to the current 2025 target for the TEN field. “A development concept is currently being finalised for the project, with detailed engineering expected to start later this year,” Mr Dhir said.
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The group is also preparing a plan for the “rapid development” of gas resources in the Jubilee and TEN fields, which have the potential “to provide energy security for Ghana, while reducing dependence on the highly competitive global LNG market”, he said, referring to the liquefied natural gas market.
Tullow is also “making progress” on securing a strategic partner for its Kenyan oil project, which the company said has the potential to be a “key driver of growth, value and diversification” for the business.
The £1.4 billion (€1.66bn) tie-up plan with UK-based Capricorn, announced at the start of June, would see Tullow shareholders take 53 per cent of the larger entity. It would combine Capricorn’s $700 million-plus net cash position with Tullow’s $2.1 billion net debt, speeding up a decline in the latter’s borrowings, which stood at more than $3 billion in the middle of 2020.
Still,Tullow is set to be the main driver of oil production, earnings and organic free cash flow for the foreseeable future, according to the analysts. This is mainly down to the Jubilee and TEN fields.
Tullow said in its trading update that it is currently preparing a prospectus for shareholders on the proposed Capricorn merger, which is expected to be available in the fourth quarter ahead of a shareholder vote “towards the end of the year” on the plan.
Edinburgh-based Capricorn shareholder Legal & General Investment Management (LGIM), which owns almost 4 per cent of the business, and Kite Lake Capital Management, which owns about 4.6 per cent, have come out against the tie-up, saying it is skewed to benefit Tullow shareholders more.
However, Capricorn’s chief executive Simon Thompson told the Sunday Times in an interview published earlier this month that he was confident that shareholders “recognise the strategic rationale” for the combination.
Mr Thomson said: “This merger offers scale, co-ordination with our respective operations in Africa, potential growth, and returns for our investors. There was no other deal that would give us focus and scale like this.”
He said the deal would create an Africa-focused energy group with assets in Egypt, Ghana, Gabon, Ivory Coast and Kenya, annual savings of $50 million, and regular dividends for investors. This follows a decade of sporadic shareholder payments by both companies.
Tullow reiterated on Wednesday that it expects its full-year production to amount to 59,000-65,000 boepd. Brent oil is currently trading at $101 per barrel, up from about $75 a year ago.
