Africa-focused Tullow Oil’s exploration budget will never return to a peak target of $1 billion, although spending could double from current levels starting next year, its CEO told Reuters. African drilling projects are among the most expensive in the world and many explorers are cutting spending, especially offshore, after the oil price rout.
Tullow said in January it was writing off $2.3 billion in relation to exploration and a number of its assets, and reduced its target exploration budget for this year to $200 million, from a target of $1 billion in 2014.
Its total planned capital expenditure in 2015 is $1.9 billion, of which $1.7 billion is earmarked for Africa.
“We will still be a big spender and probably the biggest exploration spender in Africa, but I don’t think we are going to near those ($1 billion) levels,” Aidan Heavey told Reuters.
“Once the market recovers and TEN (in Ghana) is on production you would probably be looking at double the existing budget,” he said.
British-based Tullow has been building a portfolio of mostly African assets over nearly 30 years. The focus for acquisitions will remain Africa, around areas where it already has a footprint such as the Gulf of Guinea, offshore West Africa and onshore east Africa, Heavey said.
Heavey added that he expected oil prices to recover from around $60 a barrel later this year as reduced exploration spending crimps the flow of new supplies to market.
But in the meantime, the budget will be spent on existing drilling projects such as onshore Kenya. “We’ve no budget in there for new licences,” said Heavey.
There is a high risk that explorers will leave licences they have acquired in recent bidding rounds idle unless African governments reconsider terms, Heavey said.
“There needs to be a re-look at the whole costing structure, not just the cost of services but the government take needs to be adjusted in some cases to kick-start exploration,” he said.
Heavey denied Tullow and Africa Oil, 50-50 partners in Kenya where they have found an estimated 600 million barrels of recoverable reserves, would need a price rebound to go ahead with their project. A final investment decision is due by end 2016.
“Kenya will go ahead no matter what,” he said, noting the deal was agreed when oil was around $50 a barrel.
Tullow lost more than 200 million pounds of its stock market value on Monday over concerns that a border dispute between Ghana and Ivory Coast may delay the flagship TEN project.
Heavey said he was confident a tribunal due to rule in the dispute next month would allow it to continue working on the project. “It’s in nobody’s interest to stop work because it costs money and takes away value for the project,” Heavey said.
Tullow also expects a deal to recover its stake in the Onal licence in Gabon by mid-year despite “very complicated” negotiations with the government.
(By Emma Farge and Karolin Schaps; Editing by David Holmes)
Source – Reuters. Click HERE for original article link