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Tullow Oil PLC

Tullow Oil plc $1.9 billion sales revenue; $411 million free cash flow

Tullow Oil plc (LON:TLW), the independent oil and gas exploration and production group, announced its Full Year Results for the year ended 31 December 2018. Details of a presentation in London, webcast and conference calls are available on the last page of this announcement or visit the Group’s website www.tullowoil.com.


“Tullow has worked hard over the past few years to become a self-funding, cash-generating business with a robust balance sheet, low-cost assets and a rigorous focus on cost and capital discipline. This has allowed us to set a clear capital returns policy which will start with the 2018 final dividend announced today. Our high-margin producing assets in West Africa, substantial development assets in East Africa and exploration licences in industry hotspots provide Tullow with a strong foundation for growth in the years ahead.”


· Revenue of $1.9 billion; corporate Business Interruption insurance proceeds of $188 million

· Gross profit of $1.1 billion; profit after tax of $85 million; free cash flow of $411 million; opex reduced to $10/barrel

· Year-end net debt of $3.1 billion, $1 billion headroom; gearing of 1.9x; no near-term maturities

· 2018 capital investment of $423 million; 2019 forecast of $570 million

· Sustainable capital returns policy announced in November; 2018 final recommended dividend of 4.8¢/share (c.$67 million)

· West Africa 2018 net oil production averaged 88,200 bopd; 2019 forecast 93,000 – 101,000 bopd

· Principles agreed with Government of Uganda on CGT; completion of farm-down to follow

· JV Partners targeting Uganda development FID around mid-year; Kenya development targeting end 2019 FID

· Guyana exploration drilling to commence in mid-2019 with a three-well programme planned


FY 2018

FY 2017

Total revenue ($m)



Other operating income – corporate Business Interruption insurance proceeds ($m)



Gross profit ($m)



Administrative expenses ($m)



Restructuring costs ($m)



Gain/(loss) on disposal ($m)



Exploration costs written off ($m)



Impairment of property, plant and equipment, net ($m)



Provision for onerous service contracts, net ($m)



Operating profit ($m)



Profit/(loss) after tax ($m)



Free cash flow ($m)



Note: Underlying cash operating costs per boe, capital investment, net debt, gearing and free cash flow are non-IFRS measures and are explained in the Finance Review.

Corporate Governance Matters

Board changes

On 17 April 2018, Tullow announced that Dorothy Thompson CBE had been appointed as an independent non-executive Director and Chair-designate of Tullow with effect from the conclusion of the Group’s Annual General Meeting (AGM). Dorothy Thompson then succeeded Aidan Heavey, Tullow’s founder, as Chair of the Group, at the end of the Board meeting on 20 July 2018.

Kevin Massie stepped down as Company Secretary to pursue another role in Tullow at the end of the 2018 AGM. The Board appointed Adam Holland, then Deputy Company Secretary & Senior Legal Advisor, to the role of Company Secretary.

On 6 February 2018, Anne Drinkwater informed the Board that she had decided not to stand for re-election at the 2018 AGM.


Tullow held a Capital Markets Day in London on 29 November 2018 and announced a capital returns policy to start from the 2019 financial year. The policy states that the Group intends to pay an annual ordinary dividend based on its free cash flow generation, while ensuring an appropriate balance with debt reduction and investment in the business. It is expected that the total ordinary dividend in any year will be no less than $100 million and will be payable semi-annually, split between the interim and final dividend (1/3:2/3). In periods of particularly strong free cash flow generation, the Board will also look to supplement the ordinary dividend with additional returns to shareholders.

With respect to the 2018 financial year, following another strong year of free cash flow generation, the Board has decided to recommend a final dividend of 4.8¢/share (representing a total shareholder return of c.$67 million) which will be payable in May 2019 if approved at the 2019 AGM.

Change of external auditor

Following a competitive process, the Board have appointed Ernst & Young LLP as Tullow’s external auditors. The appointment will be subject to a vote by shareholders at the Group’s 2020 AGM and, if passed, will take effect from the end of the meeting.

Annual General Meeting

Tullow’s AGM will take place on Thursday 25 April 2019 at 12pm at the Company’s offices at Building 9, Chiswick Park, 566 Chiswick High Road, London, W4 5XT.

Ian Springett

The Board regrets to announce that Ian Springett, formerly Chief Financial Officer and a Director of Tullow from 2009-2017, passed away on 16 January 2019. Ian was a great friend and colleague to many at Tullow and beyond and he will be hugely missed. The thoughts and condolences of the Board and all Tullow staff go out to Ian’s family and friends.

Operations review


Tullow’s West Africa oil assets performed strongly in 2018 and delivered net production of 88,200 bopd. This includes production-equivalent insurance payments of 8,600 bopd received under Tullow’s Corporate Business Interruption insurance. Working interest gas production averaged 1,800 boepd giving overall Group net production of 90,000 boepd.

In 2019, overall working interest oil production, including production-equivalent insurance payments, is expected to increase and is forecast to average between 93,000 and 101,000 bopd. Working interest gas production from TEN is expected to average 1,000 boepd.

Overall Group net production is therefore expected to be in the range of 94,000 to 102,000 boepd.


Gary Thompson, Executive Vice President for West Africa, commented today:

“Tullow’s West African business continues to underpin the Group with strong production performance across all our assets. The TEN fields and the West African non-operated business outperformed substantially in 2018 and with further growth in production to come in 2019, this business is well-positioned to deliver on its full potential.”


Drilling programme

Tullow returned to drilling in Ghana in 2018 following the conclusion of proceedings at the ITLOS tribunal in Hamburg in September 2017 and after gaining Government approval of the Greater Jubilee Full Field Development Plan. Tullow began a new drilling programme in March with the Maersk Venturer and a second rig, the Stena Forth, was contracted during the year to work alongside the Maersk Venturer. The second rig was contracted for an initial three-well campaign with flexible extension options reflecting conditions in the rig market which continue today. The Stena Forth began drilling in October 2018 and the additional rig capacity enabled Tullow to carry out simultaneous drilling and completion activity, allowing the tie-in of new wells to be brought forward. The results from this programme, which was completed within budget, were in line with, or exceeded, pre-drill expectations. In 2019, Tullow expects to drill and complete seven new wells across the TEN and Jubilee fields allowing gross oil production from Ghana to rise to around 180,000 bopd.


Gross production for 2018 averaged 78,000 bopd (net: 27,700 bopd) which increases to 36,300 bopd (net) after including 8,600 bopd of net production-equivalent insurance payments. Production from Jubilee was slightly lower than expected. This was due to downtime related to work on the gas compression system in the first half of 2018 and some minor facilities issues towards the end of the year, which have since been resolved. Over the year, two new Jubilee production wells, J51-P and J53-P, were drilled and successfully met all pre-drill expectations. The completion of a water injector, drilled during the previous campaign, was also carried out. These wells were brought on stream in the second half and are accessing highly productive parts of the reservoir.

Tullow expects 2019 average gross oil production from the Jubilee field to increase to around 96,000 bopd (net: 34,000 bopd). Tullow’s corporate Business Interruption insurance is expected to provide around 1,000 bopd of net production-equivalent insurance payments, resulting in expected total 2019 Jubilee full year net production of around 35,000 bopd.

Turret Remediation Project

The Turret Remediation Project is close to completion. This pioneering and unique project, which included the first ever remediation of this type at sea, required the FPSO Kwame Nkrumah to be shut down twice in the first half of 2018 for work to stabilise the turret bearing for periods of 19 days and 21 days respectively. In December 2018, the FPSO was successfully rotated to its new heading of 205 degrees and subsequently spread-moored.

The JV Partners have also agreed to install a Catenary Anchor Leg Mooring (CALM) buoy for offtake from the FPSO and a contract award has been made. The installation of the CALM buoy is likely to take place in 2020 and is not expected to affect production.


The TEN fields performed well in 2018, with gross production averaging 64,500 bopd (net: 30,400 bopd) reflecting good results from the drilling programme. The first additional Ntomme well, NT05-P, was successfully drilled in the first half of the year and started producing in August 2018. A second new producer, EN10-P, is currently being completed and is expected to be online in February.

Tullow expects 2019 gross oil production from the TEN fields to average around 83,000 bopd (net: 39,000 bopd). Tullow is confident of this growth in production following strong performance in 2018, good results from recently drilled wells in both the Ntomme and Enyenra fields and production testing that has seen the TEN FPSO deliver in excess of its design capacity. The forecast includes a two-week shutdown of the TEN FPSO for routine maintenance which is currently scheduled for the second quarter of 2019. Gross gas production is expected to be around 2,100 boepd (net: 1,000 boepd).


Tullow has successfully pre-qualified for Ghana’s maiden licensing round with bids due by mid-May 2019. The licensing process is expected to conclude by the end of August 2019.

Seadrill and Kosmos litigation

Following a trial in the English Commercial Court in May 2018, the court ruled on 3 July 2018 that Tullow was not entitled to terminate its West Leo rig contract with Seadrill on 4 December 2016 by invoking the contract’s force majeure provisions. Following advice from counsel, Tullow decided not to appeal this ruling. Tullow paid Seadrill a contractual termination fee, other standby fees that accrued in the 60 days prior to termination of the contract and interest amounting to $248 million in aggregate.

Although Tullow regards these as JV Partner costs, Kosmos disputed separately, through an International Chamber of Commerce arbitration against Tullow, its share of the liability (c. 20%) of any costs related to the use of the West Leo rig beyond 1 October 2016. On 17 July 2018, the arbitration tribunal delivered a final and binding award in favour of Kosmos which determined that Kosmos is not liable for its share of these costs. As a result of both litigation results, Tullow’s net exposure in 2018 was a cash outflow of $208 million.

Non-operated Portfolio and gas production

In 2018, production was strong across the West Africa non-operated portfolio and averaged 21,500 bopd, well ahead of the Group’s initial 2018 forecast of 19,000 bopd. The Equatorial Guinea fields performed particularly well in the first half of the year following a change of operator. In Gabon, the Simba development in Gabon has been completed and came on-stream in January. Production in 2019 from the West Africa non-operated portfolio is forecast to be between 22,000 and 24,000 bopd.

Gas production

In 2018, full year net gas production from the TEN fields and the UK averaged 1,700 boepd. In 2019, Tullow will solely produce gas in Ghana following the cessation of production in Tullow’s UK assets in 2018.


The decommissioning programme for the remaining Tullow operated wells in the UK North Sea is expected to have been completed by the third quarter of 2019. Tullow will then undertake final removal and clearance activities to restore the seabed. Tullow ceased production from its non-operated UK North Sea assets during the third quarter of 2018. The decommissioning programme for these assets is expected to be completed by 2025.

In Mauritania, the Chinguetti FPSO (non-operated) was disconnected and demobilised in the first half of 2018. The permanent abandonment programme for the wells in the field will start in mid-2019.


Mark MacFarlane, Executive Vice President for East Africa, commented today:

“This year the East Africa team will be driving hard towards two Final Investment Decisions on our East African projects which have the potential to deliver over 50,000 bopd of net production to Tullow by the early 2020s. We are making good progress in both Uganda and Kenya and are focused on delivering on the growth potential that these projects offer.”



The Kenya development plan is progressing well, and the project continues to target a Final Investment Decision (FID) in late 2019 and First Oil in 2022.

In February 2018, Tullow announced that following a full assessment of all the exploration and appraisal data, Tullow estimates that the South Lokichar basin contains 240 – 560 – 1,230 million barrels (1C-2C-3C) of recoverable resources from overall discovered oil in place of up to 4 billion barrels. The additional remaining conventional undrilled prospect inventory of the basin is approximately 230 million barrels risked mean recoverable resources, not including further potential in under-explored plays.

Tullow and its JV Partners also proposed to the Government of Kenya that the Amosing, Ngamia and Twiga fields should be developed as the Foundation Stage of the South Lokichar Development. This Foundation Stage includes a 60,000 to 80,000 bopd Central Processing Facility (CPF) and an export pipeline to Lamu. The installed infrastructure from this initial phase is expected to be utilised for the optimisation of the remaining South Lokichar oil fields and future oil discoveries, allowing the incremental development of these fields to be completed at a lower unit cost post First Oil.

Total gross capex associated with the Foundation Stage is expected to be c.$3 billion.

In 2018, the development project gained momentum. Key workstreams relating to Front-end Engineering and Design (FEED) and the Environmental Social Impact Assessments (ESIAs) of the upstream and pipeline commenced in mid-2018. Extended injection and production testing also took place with results in line with expectations. Dynamic data from these tests has materially assisted with the development plan for the Foundation Stage. Key upstream components such as well count, well spacing and CPF design are now well defined.

In 2019, several critical tasks must be completed to reach a Final Investment Decision by year end. These tasks include completing commercial framework agreements with the Government of Kenya and finalising FEED studies in the first quarter of 2019 and concluding agreements over land title and water supply with the Government of Kenya and submitting both the upstream and the mid-stream ESIAs in the second quarter.

Early Oil Pilot Scheme (EOPS)

The transfer of stored crude oil from Turkana to Mombasa by road commenced on 3 June 2018. This milestone was marked by a ceremony attended by H.E. President Uhuru Kenyatta, H.E. Deputy President H.E. William Ruto, the Turkana County Governor, Turkana MPs as well as many other Government Ministers and officials. The first truck arrived at the refinery in Mombasa on 7 June 2018, where the oil is being stored for future export.

The trucks are currently transporting approximately 600 bopd and this is expected to increase to 2,000 bopd once the EOPS is fully operational in April 2019. So far, over 70,000 barrels of oil have been transported to Mombasa. A maiden lifting of Kenyan crude oil is expected in mid-2019. Tullow has begun to market Kenya’s low sulphur oil ahead of this first lifting with initial market reactions being very positive.


Following meetings in January 2019 between the CEOs of both Tullow and Total and H.E. President Museveni of Uganda, Tullow has agreed the principles for Capital Gains Tax on its $900 million Uganda farm-down to CNOOC and Total. The Government and the JV Partners are now engaged in discussions to finalise an agreement reflecting this tax treatment that will enable completion of the farm-down to take place. Any Capital Gains Tax is expected to be phased and partly linked to project progress. At completion of the farm-down, Tullow anticipates receiving a cash payment of $100 million and a payment of the working capital completion adjustment and deferred consideration for the pre-completion period of $108 million. A further $50 million of cash consideration is due to be received when FID is taken on the development project.

The JV Partners continue to work towards reaching FID for the development project around mid-2019. During 2018, the upstream and pipeline FEED were completed in preparation for the award of Engineering, Procurement and Construction (EPC) contracts in 2019. Drilling and well construction designs and contracting activities are complete and contracts are ready to be awarded. ESIAs for both Tilenga and Kingfisher were submitted to the National Environmental Management Authority for review with approval expected in the first half of 2019. Land access activities have progressed with the active support of the Government in line with project requirements. In addition, critical transport infrastructure, including roads and an airport within the development area is being improved by the Government in support of the development.

Project financing for the pipeline is progressing well with the development of the financial model ongoing. In the first half of 2019, the JV Partners anticipate completing key commercial, technical and land agreements with the Governments of Uganda and Tanzania as well as the submission of an ESIA for the pipeline to both Governments.


Ian Cloke, Executive Vice President for New Ventures, commented today:

“In 2019, Tullow will drill three wildcat wells in Guyana. These are high-potential, high-risk wells in the world’s newest oil hot spot and we are excited about the opportunity that our licences in Guyana offer. In addition, we continue to work up other drilling prospects in highly prospective areas across Africa and South America for drilling in 2020 and beyond.”


Côte d’Ivoire

In Côte d’Ivoire, Tullow began its work programme across its new onshore blocks in April 2018 with a full tensor gravity gradiometry (FTG) survey covering 8,600 sq km. This survey was completed in May 2018 and the data is being used to optimise the location of a 2D seismic survey planned to commence in the third quarter of 2019. Tullow continues to reprocess 3D seismic data for the offshore Block CI-524 which sits alongside the maritime border with Ghana, next to Tullow’s operated TEN fields.

Tullow signed a farm-out agreement for a 30% interest in all seven onshore licences to Cairn Energy Plc. This farm-out is subject to obtaining Government approval and will leave Tullow with a 60% operated interest in each licence with most of the pre-drilling exploration costs carried.


In September 2018, Tullow drilled the Cormorant-1 well offshore Namibia. The well encountered non-commercial hydrocarbons and was plugged and abandoned. Gas signatures, indicative of oil, were encountered in the overlying shale section, supporting the concept of a working oil system in the area. The combination of a simple well design, efficient operations and a farm-out in 2017 resulted in net expenditure on this well of less than $3 million. Data gained from the well, in combination with high quality 3D seismic data, will be used to evaluate the next steps for the Group’s Namibian acreage in PEL-37. Separately, Tullow has decided to exit block PEL-30 in Namibia.


In 2018, a 9,300 sq km 3D seismic survey was completed over Block C18, in which Tullow holds a 15% non-operated stake. Tullow’s share of the cost was carried under previous farm-down agreements. The data is currently being interpreted ahead of a drill or drop decision in April. In Block C3, in which Tullow holds a 100% operated stake, the Group has been interpreting the 3D seismic survey captured in 2017 to identify prospects for a potential 2020 well.


In 2018, interpretation of a FTG survey and modelling of passive seismic data recorded in 2017 has indicated that this rift basin may be higher risk than originally anticipated. Tullow is therefore evaluating its next steps in Zambia.

The Comoros

Tullow announced on 29 November 2018 that it had agreed with Discover Exploration Ltd to farm into Blocks 35, 36 and 37, offshore the Union of the Comoros (“the Comoros”) in the Indian Ocean. Following the completion of this transaction, which requires Government approval, Tullow will operate the three blocks and hold a working interest of 35%. The Blocks comprise an area of 16,063 sq km with a gross un-risked resource potential of up to 7 billion barrels of oil. A 3D seismic survey is planned for the third quarter of 2019.

South America


Guyana will be the focus for Tullow’s exploration drilling programme in 2019. Tullow plans to drill the Jethro prospect in the second quarter of 2019 as the first of two planned wells on the Orinduik block. Prospect selection amongst the JV Partners is ongoing for the second planned well on the Orinduik Block. The success of the neighbouring Hammerhead-1 well in August 2018, only seven kilometres from the Orinduik block boundary, has further de-risked this acreage. Tullow and its partners are in the final stages of contracting a Drillship for the Orinduik drilling programme.

The Carapa prospect will be tested on the Kanuku licence in the third quarter of 2019. In 2018, Tullow increased its equity share in the Kanuku licence, offshore Guyana, from 30% to 37.5% through a farm-in deal with Repsol.


Interpretation of a 2,200 sq km 3D seismic survey recorded in 2018 continues as Tullow matures prospects that can compete for capital for drilling in 2020.


In Peru, Tullow agreed the terms to acquire a 100% stake in offshore Blocks Z-64, Z-65, Z-66, Z-67 and Z-68 in early 2018. However, in May 2018, the Supreme Decrees, authorizing PeruPetro, the state regulator, to execute licence contracts for these blocks, were revoked by the Peruvian Government. Tullow was disappointed by this outcome as the Group complied with all the processes and procedures required under Peruvian law to agree new exploration licences.

Since the revocation, Tullow expressed its continued interest in the licences and has worked closely with PeruPetro towards execution of these licences. In January 2019, a new Supreme Decree was issued which detailed how oil exploration licences are to be awarded in Peru and included clear regulations around public consultation.

Separately, Tullow agreed to acquire a 35% interest in Block Z-38 through a farm-down from Karoon Gas Australia. This agreement also remains subject to Government approval. This acreage complements the Group’s current position in South America and contains several attractive prospects and leads for potential drilling in 2020.


In October, Tullow was awarded Block 62 in which it has a 100% operated interest. This block contains similar deep-water plays to Block 47. In addition, Tullow completed a farm-out of a 30% interest in the Block 47 licence to Pluspetrol for a carry on a future well. Work has continued maturing prospects in Block 47 for potential drilling in 2020. In Block 54, Tullow has continued to examine results from the Araku well ahead of any potential drilling.


Tullow has decided that it will not enter the next term of the Block 15 exploration licence with potential prospects being deemed too high risk. Tullow will exit the licence in March 2019.


In December 2018, Tullow agreed to sell its 30% interest in the Kohlu licence, Pakistan to OPL. Government approval is anticipated in the first half of 2019. This is Tullow’s last remaining licence in Pakistan.

Finance review

Les Wood, Chief Financial Officer, commented today:

“Tullow has made excellent progress in 2018, significantly deleveraging the balance sheet and generating high levels of underlying free cash flow. The confidence we have in the performance of the business allowed us to establish a sustainable capital returns policy at the end of last year and our strong 2018 results have allowed us to announce a final dividend that will be payable in May 2019. We have developed a very firm foundation for growth over the last few years and I am confident that we can deliver significant shareholder returns in the years ahead.”

Financial results summary



Working interest production volume (boepd)1



Sales volume (boepd)



Realised oil price ($/bbl)



Total revenue ($m)2



Gross profit ($m)



Underlying cash operating costs per boe ($/boe) 3



Exploration costs written off ($m)



Impairment of property, plant and equipment, net ($m)



Operating profit ($m)



Profit/(loss) before tax ($m)



Profit/(loss) after tax ($m)



Basic profit/(loss) per share (cents)



Capital investment ($m)3,4



Adjusted EBITDAX ($m) 3



Net debt ($m) 3



Gearing (times) 3



Free cash flow ($m) 3





1. Including the impact of production-equivalent insurance payment barrels from the Jubilee field, Group working interest production was 90,000 boepd.

2. Total revenue does not include receipts for Tullow’s corporate Business Interruption insurance of $188 million. This is included in Other Operating Income which is a component of Gross Profit.

3. Underlying cash operating costs per boe, capital investment, adjusted EBITDAX, net debt, gearing and free cash flow are non-IFRS measures and are explained later in this section.

4. Capital investment excludes Ugandan expenditure of $50 million in 2018 that will, subject to completion of the farm-down, be offset by either the working capital completion adjustment or deferred consideration.

Production and commodity prices

Working interest production averaged 81,400 boepd, a decrease of 7% for the year (2017: 87,300 boepd). Including the impact of production-equivalent insurance payments from the Jubilee field, working interest production averaged 90,000 boepd (2017: 94,700 boepd), a decrease of 5%. The decrease resulted from the impact of turret remediation work at Jubilee, and the cessation of production at higher cost non-operated assets. This was partially offset by strong production from the TEN fields and the remainder of the non-operated West Africa portfolio.

The Group’s realised oil price after hedging was $68.5/bbl and $71.8/bbl before hedging (2017: $58.3/bbl and $54.2/bbl respectively). The increase in underlying oil prices reduced the net contribution of the realisation of hedges entered into by the Group to total revenue.

Underlying cash operating costs, depreciation, impairments, write-offs, and administrative expenses

Underlying cash operating costs amounted to $327 million; $10.0/boe (2017: $386 million; $11.1/boe). Underlying cash operating costs were net of $46 million of insurance proceeds (2017: $51 million). The 10% decrease in unit cash operating costs was principally due to the impact of ongoing cost saving initiatives and the cessation of production from higher cost assets in the non-operated portfolio.

DD&A charges before impairment on production and development assets amounted to $568 million; $17.2/boe (2017: $574 million; $16.6/boe). A full year of amortisation of the TEN FPSO finance lease asset was recorded for the first time in 2018, as the asset was only recognised in the second half of 2017. This was offset by the impact of impairment recorded at the end of 2017.

The Group recognised a net impairment charge of $18 million in respect of 2018 (2017: $539 million). Impairments in Gabon were largely driven by the lower Dated Brent forward curve at 31 December 2018, whilst impairments in the UK related to increased decommissioning cost estimates. Impairment reversals were recorded in Côte d’Ivoire and Ghana as a result of reserves upgrades and improved cost forecasts, respectively.

During 2018, exploration costs write-offs were $295 million (2017: $143 million) and included $140 million for the Wawa and Akasa assets in Ghana, $75 million associated with capitalised interest on Uganda assets held for sale, and $25 million of New Ventures activity. The total exploration costs written off, net of tax, were $246 million (2017: $143 million).

Administrative expenses of $90 million (2017: $95 million) included an amount of $23 million (2017: $33 million) associated with share-based payment charges. In June 2015 the Group set a target to remove $500 million of cash costs from the business over a three-year period. During 2017 this target was increased to $650 million. The three-year period concluded on 30 June 2018, with the Group delivering $708 million of savings. The ongoing cost of running the business has reduced significantly and will continue to be a key area of focus.

Provision for onerous service contracts

Changes to provisions for onerous service contracts in 2018 resulted in an income statement charge in 2018 of $167 million (2017: credit of $1 million). This primarily resulted from the adverse litigation outcome related to the West Leo rig contract with Seadrill.

Derivative financial instruments

Tullow undertakes hedging activities as part of the ongoing management of its business risk to protect against volatility and to ensure the availability of cash flow for re-investment in capital programmes that are driving business growth.

At 31 December 2018, the Group’s derivative instruments had a net positive fair value of $128 million (2017: negative $76 million), net of deferred premium.

2019 hedge position at 31 December 2018


Bought put (floor)

Sold call

Bought call

Hedge structure





Three-way collars (call spread)





Straight puts



Total/weighted average



The 2020 hedging position at 31 December 2018 was 25,000 bopd hedged with an average floor price protected of $59.00/bbl.

Net financing costs

Net financing costs for the year were $270 million (2017: $310 million). The decrease in financing costs is associated with the reduction in interest on borrowings due to a reduction in the average level of net debt in 2018 compared to 2017. Further, in 2017 a foreign exchange loss of $29 million was incurred in relation to the hedging of the proceeds from the Rights Issue. Net financing costs include interest incurred on the Group’s debt facilities, foreign exchange gains/losses, the unwinding of discount on decommissioning provisions, and the net financing costs associated with finance lease assets, offset by interest earned on cash deposits and capitalised borrowing costs.


The net tax expense of $175 million (2017: credit of $111 million) primarily relates to tax charges in respect of the Group’s production activities in West Africa, as well as UK decommissioning assets, reduced by deferred tax credits associated with exploration write-offs, impairments and provisions for onerous service contracts.

The Group’s statutory effective tax rate for 2018 is 67.2 per cent (2017: 37.0 per cent). After adjusting for non-recurring amounts related to exploration write-offs, disposals, impairments and provisions for onerous service contracts and their associated deferred tax benefit, the Group’s adjusted tax rate is 40.7 per cent (2017: 23.8 per cent). The adjusted tax rate has increased due to changes in the geographical mix of profits, particularly the impact of increased profits from West Africa production taxed at higher rates, and lower tax credits due to reduced Norwegian exploration activities and the disposal of the Netherlands business during 2017.

The Group’s future statutory effective tax rate is sensitive to the geographic mix in which pre-tax profits and exploration costs written off arise. Unsuccessful exploration is often incurred in jurisdictions where the Group has no taxable profits such that no related tax benefit results. Consequently, the Group’s tax charge will continue to vary according to the jurisdictions in which pre-tax profits and exploration costs write offs-occur.

Profit/(loss) after tax from continuing activities and profit/(loss) per share

The profit after tax for the year from continuing activities amounted to $85 million (2017: $175 million loss). Basic earnings per share was 6.1 cents (2017: 13.7 cents loss).

Reconciliation of net debt


Year-end 2017 net debt


Sales revenue      


Other operating income – lost production insurance proceeds


Operating costs


Operating expenses


Cash flow from operations               


Movement in working capital


Tax paid


Purchases of intangible exploration and evaluation assets and property, plant, and equipment


Other investing activities


Other financing activities


Foreign exchange gain on cash


Year-end 2018 net debt


Capital investment

2018 capital investment (net of Uganda expenditure which will be repaid from either the working capital completion adjustment or deferred consideration post the completion of the Uganda farm-down) amounted to $423 million (2017: $225 million) with $353 million invested in development activities and $70 million invested in Exploration and Appraisal activities. More than 60% of the total was invested in Kenya and Ghana and over 95% was invested in Africa.

Capital expenditure will continue to be carefully controlled during 2019. The Group’s 2019 capital expenditure is expected to total approximately $570 million. This total excludes c.$170 million of forecast Uganda expenditure which will be repaid from either the working capital completion adjustment or deferred consideration post the completion of the Uganda farm-down, which is expected in the first half of 2019. The capital investment total comprises Ghana capex of c.$250 million, West Africa non-operated capex of c.$90 million, Kenya pre-development expenditure of c.$70 million, Uganda post-completion Tullow costs of c.$10m, and Exploration and Appraisal expenditure of c.$140 million.

At completion of the Uganda farm-down, Tullow is also due to receive $100 million cash consideration along with re-imbursement of 2017 and 2018 capex of c.$108 million. A further $50 million cash consideration is due to be received when FID is taken on the development project.


On 23 March 2018, Tullow completed its offering of $800 million of senior notes, due in 2025. The offering was significantly oversubscribed and increased from the initial offering of $650 million. Proceeds were used to redeem, in full, senior notes due in 2020 and repay drawings on the Reserve Based Lending facility. The senior notes offering further extended Tullow’s debt maturities, with no scheduled debt repayments until 2021. On 4 April 2018, commitments under Tullow’s Revolving Corporate Facility (RCF) amortised in line with the schedule to $500 million, on 18 April 2018 Tullow voluntarily cancelled a further $150 million of commitments under the facility, and in November 2018, given the strength of the balance sheet, the Board decided to cancel the Group’s undrawn $350 million RCF, four months before maturity, to realise cost savings from reduced commitment fees. Following the cancellation of this facility, liquidity headroom of unutilised debt capacity and free cash were $1 billion at the end of 2018, maintaining flexibility for future opportunities.

As a result of the implementation of IFRS 9: Financial instruments, the Group’s opening non-current borrowings on 1 January 2018 increased by $111 million. Refer to note 1 for further details.

Credit Ratings

Tullow maintains corporate credit ratings with Standard & Poor’s and Moody’s Investors Service. During the year, Standard & Poor’s upgraded Tullow’s corporate credit rating to B+ from B, and assigned a positive outlook; in addition, Standard & Poor’s raised the rating of Tullow’s corporate bonds to B+, in line with the corporate credit rating. Moody’s Investors Service upgraded Tullow’s Corporate Family Rating to B1 from B2, and consequently the rating of Tullow’s corporate bonds was raised to B3 from Caa1.

Liquidity risk management and going concern

The Group closely monitors and manages its liquidity headroom. Cash forecasts are regularly produced and sensitivities run for different scenarios including, but not limited to, changes in commodity prices and different production rates from the Group’s producing assets. The Group had $1 billion liquidity headroom of unutilised debt capacity and free cash at the end of 2018. The Group’s forecasts show that the Group will be able to operate within its current debt facilities and have sufficient financial headroom for the 12 months from the date of approval of the 2018 Annual Report and Accounts.

Based on the analysis above, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the annual Financial Statements.


It is the view of the Board that, given the Group’s focus on Africa and South America, Tullow’s business, assets and operations will not be materially affected by Brexit. Tullow also derives its income from crude oil, a globally-traded commodity which is priced in US dollars.

Nevertheless, Tullow employs a number of EU nationals in the UK and the Board is concerned about the uncertainty that a No Deal Brexit would cause these much-valued members of staff. To help address this concern, Tullow has established a Brexit Focus Group to share information with affected employees and ensure they are up to date with the latest developments.

The Board also recognises that a No Deal Brexit could cause significant regulatory, legal and financial uncertainty with regard to our decommissioning programme in the UK North Sea. Operators would have to be carefully guided by the Department for Business, Energy and Industrial Strategy as to exactly how decommissioning programmes should be executed and what tariffs or fees, if any, should be applied to non-UK service providers.

Events since 31 December 2018

There has not been any event since 31 December 2018 that has resulted in a material impact on the year end results.

Non-IFRS measures

The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. These non-IFRS measures include capital investment, net debt, gearing, adjusted EBITDAX, underlying cash operating costs and free cash flow.