Tullow writes off Jamaican oil exploration licence
T ullow Oil Plc has fully written off its oil exploration licence for the Walton-Morant Basin offshore Jamaica, on which it has taken a US$36-million hit.
The write-off relates to what the company indicated in its most recent earnings report was the relinquishment of the Walton-Morant licence due to “expiry or planned exit”, but Tullow has not explicitly said whether it plans to pull out of the oil exploration project.
The licence expires in July. Its write-down to nil formed part of a wider US$1.2 billion of asset write-downs as the British company scaled back on its global operations.
Tullow holds 80 per cent interest in the Walton-Morant exploration project, while its partner United Oil and Gas Limited holds 20 per cent. They are seeking a third equity partner to finance the drilling phase of the exploration, under what is referred to in industry terms as the ‘farming out’ of the project.
The Walton-Morant Basin covers 32,065 square kilometres and includes 10 full blocks and part of a block in shallow waters to the south of Jamaica, according to Tullow, which first acquired the licence in November 2014. The contract covered low-cost studies, reprocessing work, along with 2D and 3D seismic surveys in the basin. The team, which mapped positive prospects for oil over the years, was required to commit to drilling by this July.
Neither Tullow nor United Oil has responded to requests for comment on what the write-off implies; while energy sector regulator, the Petroleum Corporation of Jamaica, PCJ, which is being wound up by the Government and will cease to exist at month-end, did not seem to have the answers.
PCJ said that at its last update from the oil explorers, the search for the third drilling partner was still under way. Were Tullow to decide to exit the project, the agency added, follow-up questions should be funnelled to the Ministry of Energy.
“The PCJ can advise that we have been informed by Tullow and United Oil and Gas, that the farm-down process (equity reduction) has been unsuccessful so far; however, the companies have indicated that they are still looking for partners,” the agency told the Financial Gleaner.
“The current exploration licence held by the two companies is valid until the end of July 2020,” PCJ said.
That gives the oil explorers four more months. But the collapse in world oil prices amid the coronavirus crisis is unlikely to make the search for a partner easier. Oil was trading at US$23 per barrel early Thursday – a price that falls well short of the breakeven point of US$50 to US$60 per barrel to drill, distribute and market crude.
Tullow in recent months announced that it scaled back its exploration activities in various markets and appointed a new head of the division, Amalia Olivera-Riley, formerly of Repsol and Exxon Mobil. The oil company said its exploration portfolio was to be “balanced between proven basins, targeted frontier drilling and near-field opportunities”.
It comes amid US$1.8 billion of losses at Tullow last year, which exceeded revenue of US$1.7 billion.
Tullow concluded its business review in February, which included slashing its staff by up to 35 per cent. The company is still seeking to hire a new CEO.
At the release of its financial results and investor documents earlier this month, Tullow indicated that it was in a better position following its restructuring. Nowhere on its slides for exploration did it highlight Jamaica, beyond stating that the Walton-Morant licence exploration period expires on July 31; but it did highlight other regional assets in Guyana, Suriname, Argentina and Peru for exploration.
The US$1.2 billion of asset write downs – some partially, and some to nil value – spanned Jamaica, Namibia, Mauritania, Uganda, Guyana and Kenya.
For Guyana, Tullow said it wrote down US$60 million worth of assets due to “unsuccessful exploration results or assessments”. The assets there include Jethro Well, Joe Well and Carapa Well No. 1.