Irish explorer Tullow Oil reported a surprise €18 million operating profit on Wednesday after three years in the red and said it expected the first oil from its Kenya prospect in 2021 or 2022.
The London-listed company is targeting east Africa as its next frontier after developing two large fields in Ghana earlier this decade.
Tullow entered Kenya in 2010 and has more 48,000 sq km of acreage in the country.
It said after appraisal drilling and well tests at the South Lokichar basin, it estimated the land-locked basin to contain 560 million barrels of oil in 2C recoverable resource, compared with an earlier resource estimate of 750 million barrels.
Tullow and its partners, Africa Oil and Maersk Oil – due for takeover by Total – propose to begin with the development of the Amosing and Ngamia fields and build a processor that could produce 60,000 to 80,000 barrels per day (bopd), which would be exported via pipeline to the coastal town of Lamu.
Chief executive Paul McDade said that it would make a final investment decision on the project late next year with the first oil being produced by 2021 or “more realistically” 2022.
Tullow has a 50 per cent interest in Kenya, but Mr McDade indicated that it could cut this as the project moves forward and needs increasing amounts of cash.
He also indicated that it has spoken to Total ahead of the French giant's takeover of Maersk and that company's 25 per cent stake in the Kenyan field in a few weeks' time. The Irish explorer is already working on large project in Uganda with Total.
Tullow reported an operating profit of $22 million (€18 million) for the year ended December 31st, compared with a loss of $755 million in 2016, helped by higher production and cost cuts.
“It’s a very strong outcome, it puts us in a great position to move forward with the growth of the company,” Mr McDade said.
A rise in oil prices in 2017 made a small contribution. That has continued into this year, with crude selling for more than $60 a barrel. Mr McDade pointed out that the company based its budgets on $50 a barrel and intended staying within those limits.
Tullow’s net debt fell 27 per cent to $3.5 billion as higher revenue allowed the company to end the year with $543 million of free cashflow.
The company also forecast 2018 capital expenditure of $460 million, which was more than double its spending in 2017 of $225 million.
Analysts expected a loss of $103.6 million. Production from working interests such as as the Jubilee field in Ghana was 32 per cent higher at an average of 94,700 barrels of oil equivalent per day (boepd) in 2017.
It forecast 2018 production in the range of 86,000 to 95,000 boepd.
In a note, Job Langbroek, analyst with stockbrokers Davy, said the core message in Tullow Oil's 2017 performance review "highlights improved operational stability and cost controls, debt reduction and also the first pointers to the next phase of growth".
“We agree with this and think that Tullow is in a much better position now than a year ago,” he said. – Additional reporting: Reuters