A time for top-tier explorationJune 23, 2020
Ian Cloke, executive vice-president of Tullow Oil, talks to The Energy Year about the company’s African asset sales, how Covid-19 has impacted operations and the challenges of finding good frontier exploration opportunities. Tullow Oil is an independent oil and gas E&P company with operations in Africa and South America.
How has the pandemic impacted your activities and contributed to your Africa asset sales?
The reason that we decided to divest some of our Africa assets was the debt position we were in. Our executive chairlady, Dorothy Thompson, set a target of USD 1 billion in asset sales by the end of 2020 to achieve a firmer financial footing. This is why we announced the sale of our remaining stake in Uganda for USD 575 million. It was not because of Covid-19; it was going to happen before the oil price drop.
We called force majeure in Kenya, which is allowing us to have a conversation with the government about the licences and the wider project. We terminated the early oil pilot scheme as well, but it was not because of Covid-19. It was the end of two years and we’d acquired all the necessary data, so we didn’t need to continue any further. At the same time, it had also delivered important local content, capacity building, major infrastructure upgrades and the first export of oil from East Africa.
Our seismic contractor in onshore Côte d’Ivoire had to declare force majeure on our 2D-seismic contract for various reasons. One is that they could not get the people in and out of the country as the government closed all the borders, so they ended up stopping activities.
Covid-19 has had some major impacts on us, just like on many other companies. As for our office personnel, we have managed to quickly transition to a remote work environment. We have been doing the farm-outs over the web and our IT system has been very secure and stable.
From an exploration perspective, we were carrying out seismic acquisition in Argentina early this year and we completed most of it. We could not finish all the work because it was winter in the Southern Hemisphere and we could not change the crew, but we plan on going back and completing the seismic work by the end of the year.
Regarding production, our partners in Gabon have started to see the effects of the downturn and we have also started to see drilling activity being pushed back and rigs being unable to get into the country. Our biggest concern from an operated perspective has been how to keep the FPSOs in Ghana operating safely, as these are the main source of our revenue. Ghana will remain a core producing asset for us.
Our mid-case company-wide production figure was set at 75,000 boepd for 2020 and we are on track to hit this.
How have your Ghana activities been affected?
We had a plan in place from when Ebola broke out back in 2014-2015, and we’ve kept it active ever since to deal with similar situations. Carrying out operations became difficult when Ghana’s government shut down the airspace and implemented a 14-day quarantine in the midst of the pandemic. We just had to be more flexible to keep our activity going.
We reduced the POB [persons on board] offshore by 50%. We tested people at the airport in London and we had charter flights going down from London to Ghana. The workers were tested in Ghana, went into 14-day quarantines, were tested at the end of that and then went out to the FPSO. That rigorous approach kept our production stable and operations safe, and we have been running at about 90-100% efficiency.
We had a number of Covid-19 cases on the construction support vessel and we had to release the vessel from the FPSO. We tested everybody on both FPSOs and evacuated people into quarantine. Thankfully, everybody is well. Now both FPSOs are completely Covid-19 clear.
What are the next steps in Guyana going forward?
At the moment, we are only focusing on analysing all the prospects in Guyana. We had exciting well results in 2019 in the Tertiary and the Cretaceous but we need to do more work to assess our next steps. Now we’re taking time to rebuild the inventory and to understand what the next series of prospects will be. Further developments will very much depend on capital allocation going forward.
How difficult is it to find good new frontier exploration opportunities in today’s environment?
Good-quality frontier exploration activities can always attract investment; however, they have to be top tier. By that I mean excellent fiscals, good quality oil and good reservoir rocks. There are a number of obstacles in the way of frontier exploration today, including the climate debate, the potential peak of oil production by 2030 or 2040, the increased importance of ESG [environmental, social and corporate governance] investment and, ultimately, the massive drop in oil prices.
From a frontier exploration perspective, we are looking at opportunities on a very selective basis. Guyana is a good example because petroleum systems are lower risk there. I think that frontier exploration activities, unless in hotspots like Guyana, are going to be very limited in the next few years until we get a sustained oil price recovery.
What are your expectations as to how local content programmes may evolve going forward in the countries where you operate?
I am not sure that Covid-19 made any difference in this area. Local content has always been very important but the right people have to be in the right places. You can’t just have local content for the sake of it. You have to make sure that your operations are as efficient as possible. If your localised operations are more expensive than others, you can easily find yourself facing inefficiencies and higher cost.
How does the 2020 oil price shock compare to previous industry events?
I think this one is a very different crisis and mostly because we came out fairly quickly from the last one in 2014/2015. This feels different, whether it is because we do not know when the demand is going to come back or how OPEC will go about influencing oil market developments.
Today, every piece of investment is being scrutinised. At the moment, it is about making sure that your cost is as low as possible and your production is as high as possible. I have never seen such co-ordinated cuts of capex across the whole industry; that did not happen last time. The price drop was so extreme this time and so quick that the whole industry has entered into a drastic cost-cutting mode for self-preservation purposes.