Tullow Oil welcomes ITLOS ruling

Some good news for Tullow Oil on Monday when the Special Chamber of the International Tribunal of the Law of the Sea (ITLOS) in Hamburg rejected Côte d’Ivoire’s request that Ghana suspend all oil exploration and exploitation in the disputed zone between the two West African countries.  The dispute had weighed on Tullow’s high impact TEN development – although not the flagship Jubilee complex – and news of the ITLOS ruling saw shares in the London-listed oil group move higher in morning trading, although the gains were reversed by close.

The good news for shareholders in the FTSE100 heavyweight is that development work on the TEN project – now over 55 per cent complete – can continue unimpeded by the high level maritime boundary negotiations.  All 10 of the wells expected to be online at first oil have already drilled and Tullow says the project remains within budget and on schedule for first oil in mid-2016.  This is key, as it means the £3.7 billion market cap company, which in February, in the light of low oil prices and major write-offs, suspended its final dividend payment for 2014, can proceed to first oil on this strategic project with no further interruption or delay, reducing the risks that it might exceed available credit lines or breach covenants.

The field was discovered in 2009 with the Tweneboa-1 wildcat in the Deepwater Tano licence.  Follow-up drilling yielded a major find, the Tweneboa-Enyenra-Ntomme (TEN) field and in May 2013, the Government of Ghana approved the Plan of Development for the deepwater field.  The field will be developed via an FPSO with a gross facility design capacity of 80,000 bpd.  When it comes online, TEN will lift Tullow’s net West Africa oil production to over 100,000 bpd by the end of 2016, generating substantial cash flows and ensuring the resilience of the balance sheet. 

Analyst Job Langbroek at Davy Research in Dublin welcomed the ITLOS ruling. “Early fears of a possible material impact on the valuation of TEN now look very much overdone, and market value lost on the back of this should be largely recovered,” said the analyst.

The boundary dispute has some years to run. ITLOS has ordered a number of provisional measures that both Ghana and Côte d’Ivoire, where Tullow also has oil operations, are required to comply with, including continued cooperation, until ITLOS gives its decision on the maritime boundary dispute.  This is not expected until late 2017.  Tullow is not a party to this arbitration process and will now await a decision by the Government of Ghana on how it will implement the provisional measures order.