Tullow to pump first oil from Ghana’s TEN field early August

LONDON (Bloomberg) -- Tullow Oil said a new project off Ghana will produce its first crude early next month as the African-focused explorer reported its first profit in three years.

Production at TEN—also known as the Tweneboa-Enyenra-Ntomme project—will gradually increase to 80,000 bopd by the end of this year, the London-based company said in a statement Wednesday.

TEN will help offset lower output from Tullow’s flagship Jubilee field off Ghana, which suffered a technical issue on its floating production, storage and offloading vessel. That additional production will allow the company to start “deleveraging” its balance sheet, said CEO Aidan Heavey. Net debt rose almost a third to $4.72 billion in the first half of the year, in line with guidance provided by Tullow last month.

Tullow’s shares gained the most this month as the explorer reported first-half net income of $30 million after a loss of $68 million a year earlier. The stock rose as much as 5.6% and was 2.9% higher at 204.7 pence as of 10:24 a.m. in London, bringing this year’s gain to 24%.

Cutting Costs

The profit partly reflected lower-than-expected administrative and exploration costs, according to Martijn Rats, an analyst at Morgan Stanley who was expecting a loss of $123 million. Administrative expenses dropped by almost a third to $68.4 million in the first half, Tullow said.

The start of the $4.9-billion TEN project, after more than three years of development, comes after oil prices fell by more than half in the past two years amid a supply glut. It’s the biggest project to start up in Africa so far this year and one of the largest new developments in the world, according to Martin Kelly, senior analyst for Sub-Saharan Africa at Wood Mackenzie Ltd.

Operator Tullow holds 47.18% of TEN, which the company projects will contribute an average of 11,000 bopd to total production this year. Kosmos Energy Ltd. and Anadarko Petroleum Corp. each have a 17% interest in the field, while Ghana National Petroleum Corp. has a 15% stake and South Africa’s PetroSA has 3.8%, according to Tullow’s website.

Capital Spending

Tullow expects its capital expenditure to drop to a range of $275 million to $525 million next year from a planned $1 billion in 2016, which partly reflects investment in TEN, CFO Ian Springett said in an interview.

Production at Jubilee dipped to 62,900 bopd in the first half from an average of 102,600 bopd last year. Tullow expects to recover funds related to lost production from the field, Springett said. The company has notified insurers of claims related to a faulty turret on the Jubilee FPSO, and said it expects to recover $75 million for capital expenditure and operating expenses this year as well as other costs related to lost output.

The installation of a new mooring system to resolve the technical problem will also halt production in the first half of next year, the company said.