Tullow Oil Plc, the U.K. explorer focusing on Africa and Latin America, more than doubled write-offs in 2012 on unsuccessful wells in Guyana, Suriname and Ghana. The company will drill 40 wells this year.
The company will write off $299 million from exploration, up from $121 million in 2011, according to a statement today. Including asset value reductions, Tullow recorded total charges of about $670 million for 2012. It will spend $900 million this year, targeting about 1 billion barrels of resources, with the majority of wells to be drilled in East Africa.
“2013 will be our biggest exploration year,” Chief Financial Officer Ian Springett said in a phone interview. “There are some important, potentially basin-opening wells.”
Tullow, based in London, has secured exploration projects in Uruguay, Mozambique, Greenland and Guinea as it expands into new frontiers. In December, it agreed to buy Spring Energy AS to boost its exploration portfolio in Norway. Tullow also decided to exit the U.K. and Netherlands by selling its southern North Sea gas production assets.
The stock fell 3.2 percent to 1,186 pence in London.
Tullow and Africa Oil Corp. have started tests at the Twiga South-1 exploration well in Kenya, the latest discovery in the East African nation.
“Test flow rates are not expected to exceed 500 barrels of oil per day interval due to the limits of the test equipment, reservoir energy and the reservoir quality,” Tullow said in the statement.
The company plans to produce 86,000 to 92,000 barrels of oil equivalent a day this year, up from 79,200 barrels pumped last year. In November, Tullow had forecast average daily output for 2012 of at least 80,000 barrels. Current output is in the region of about 90,000 barrels a day, Springett said.
“Production for the year came in lower than guidance,” Gerry Donnelly, a London-based analyst at FirstEnergy Capital Corp., wrote in a report. “The market sentiment will also be focused on flow test rate guidance at the low end of expectations for upcoming test results from Twiga South in comparison with flow tests rates from Uganda.”
In Ghana, the total well extraction capacity at the Jubilee field is now in excess of 120,000 barrels of oil a day, allowing tests of pumping equipment capacity in the next few weeks. The company expects floating production vessel capacity to increase to about 130,000 barrels a day by October after improving gas handling operations, Springett said.
“Jubilee production issues were successfully and cost effectively resolved and gross production from the field is now around 110,000 barrels of oil a day,” Chief Executive Officer Aidan Heavey said in the statement.
Tullow said it plans to invest about $2 billion in projects this year.
Tullow, which is developing fields in Uganda with Total SA and Cnooc Ltd., in December said production is being held up by government discussions over plans to build a refinery and export pipeline. The delays prompted analysts including Brian Gallagher of Investec Bank Plc to suggest the company may sell its Ugandan assets.
“We are not planning to exit Uganda,” Springett said. “We will continue to manage our portfolio, but right now our focus in Uganda is getting the final investment decision and we will see where we go after that.”
The company may sell part of its stake in the Tweneboa-Enyenra-Ntomme (TEN) project off Ghana, Springett said. For the time being, Tullow and its partners Kosmos Energy Ltd. and Anadarko Petroleum Corp. are focusing on the field development plan, the CFO said.
“We currently have a 50 percent share in TEN, the higher end of percentage we like. Less is good,” Springett said. “We are not in any discussions with anybody at this time.”