Tullow Oil #TLW: TEN field declines continue
The TEN field is continuing to decline at a rapid rate, and is getting much gassier
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In their recent update, Tullow provided fresh guidance for the year. While Jubilee was nudged up (presumably based on recent drilling performance), TEN guidance continues to fall, now at 16kbd net for the year vs 16.2kbd at the last update, and 23kbd for 2020.
However, if we look at the underlying field data, month on month, the declines (and thus potential for downgrades) seem much steeper. The numbers below represent gross oil production (Tullow WI 47.2%) through to June. Note the rising gas oil ratio.
The recent decline trend has remained pretty consistent: if anything it has steepened in June, as gas production has continued to creep up.
A new gas injector is planned for late 2021 but it is unclear what it will achieve given that the vast majority of gas (around 80%) is already reinjected into the field (see below)
Presumably either chokes will be opened further, ESP rate will be increased, or gas will be taken from Jubilee to inject. That could add a bcf or two a month to reinject into the field, but as far as we can see, it doesn’t seem likely to dramatically change the decline glide path.
If we look at rate vs cumulative oil on a log basis (used to estimated EUR - ultimate recovery of oil by extrapolating to the x axis) we see the decline profile suggesting EUR of between 110 and 120 mmbo vs approx 90mmbo at year end. In other words 20-30mmbo remaining, or 10-15mmbo net to Tullow. Given 1P reserves at the end of 2020 for TEN of over 100mmbo (gross) even on Kosmos’ apparently more modest estimate (iterated in our “Melting Ice-cube” report), the below extrapolation would appear to suggest a 70% downgrade to these numbers:
TEN Field: Rate vs Cum analysis (log rate mbod y axis, cum oil, mmbo x axis)
If we continue to extrapolate on the existing glide path for rate vs cum oil, and project on the decline rate going forward, we have TEN gross production at year end between 22-24mbod, and a potential 1mbod shortfall to guidance for FY21.
The implication for FY22 guidance could therefore see TEN at net 10mbod or less, which would require Jubilee production to remain flat with 2021 guidance in 2022 to have a chance of getting to 50,000 barrels of oil a day average in 2022, or 15% lower than 2021. Tullow would also become disproportionately reliant on non operated Gabon production remaining flat for the foreseeable future.
Also notable in Tullow’s recent guidance is a downgrade to Cote d’Ivoire production for 2021 from 2.3mbod net to 1.5 net or around a third since the 2020 results announcement. With Gabon guidance also down, the company is heavily reliant on its Jubilee drilling programme outperforming to be able to be certain to meet its debt servicing costs going forward.
Conclusion
We continue to see Tullow struggling to maintain or recover production for the foreseeable future, with a consequential increasing burden of debt servicing and fixed operating costs given lower unit production. We believe that may have negative implications for share price development in the future, especially if recent gains in oil prices are not sustained.
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