United Kingdom oil company Tullow is exiting the Guyana market after poor returns from its efforts in the offshore Orinduik Block but the deal would see financial returns to the company if commercial oil is found in the future.
The company issued a statement that, “Tullow Oil Plc. (“Tullow”) is pleased to announce that it has agreed to sell its total interest in Tullow Guyana B.V. (“TGBV”), which includes the Orinduik licence (Tullow 60% operated equity) in Guyana to Eco Guyana Oil and Gas (Barbados) Limited (“Eco”) (the “Transaction”) in exchange for a combination of upfront cash and contingent consideration.” The company also disclosed that the deal is expected to be finalized in the second half of this year.
“Tullow’s decision to exit the Orinduik licence is in line with its strategy to focus on its high return production assets in Africa and infrastructure-led exploration around producing hubs and delivers its objective to unlock value in emerging basins. In 2019, Tullow drilled two exploration wells on the Orinduik licence which yielded uncommercial oil discoveries. Nonetheless, Tullow recognises the
material oil resource potential remaining in the Orinduik licence and as such, the terms of the Transaction allow Tullow to retain exposure to any potential future success in the region,” it added.
The decision of a global major’s pullout from this country, comes at a time that it is preparing to auction a number of oil blocks and this could potentially influence investors decisions. Tullow also has operations in the Kanuku Block which Spanish oil major, Repsol, operates.
A summary of the transaction explains that there will be a US$700,000 cash payment upon transfer of TGBV’s 60% equity and operatorship of the Orinduik licence to Eco, to be paid to Tullow Overseas Holdings B.V. (“TOHBV”) on completion of the Transaction (the “Initial Consideration”). Contingent consideration is payable to TOHBV, which is linked to a series of potential future milestones and triggered in that the company would get US$4 million in the event of a commercial discovery; US$10 million payment upon the issuance of a production licence from the Government of Guyana; and royalty payments on future production – 1.75% of the 60% working interest entitlement revenue net of capital expenditure and lifting costs. The company made clear that the transaction and payment of the Initial Consideration is subject to certain market-standard conditions precedent, including Government and JV approvals.
It said that proceeds from the transaction will be put towards general corporate purposes. The Transaction is classified as a Class 2 transaction as defined by Chapter 10 of the Listing Rules and is therefore not conditional on the approval of Tullow’s shareholders. It said that on 31 December 2022, the gross asset value attributable to the Transferred Interests subject to the Transaction amounted to $1.5 million as per the audited TGBV financial statements. As of 31 December 2022, the gross 2C resource attributable to the Transferred Interests amounted to 47.7mmbbls.
In August 2019, Tullow had announced its first oil discovery in Guyana, with the Jethro-1 well on the Orinduik Block. It said that “The well encountered 55m of net oil pay in high quality oil bearing sandstone reservoir in the Lower Tertiary play. This discovery was followed in September by the Joe-1 discovery in the Upper Tertiary play. The quality of the oil is heavy, however, and has high sulphur content.” Upstream recently reported that Repsol was “aiming to assess a possible field survey” as it plots it future plans. However, ExxonMobil has had great success in the Stabroek Block which is located seaward or above that of the Orinduik Block, with over 11B barrels of oil from over 30 discoveries.
Tullow is an independent oil & gas, exploration and production group which is quoted on the London and Ghanaian stock exchanges (symbol: TLW). The Group has interests in over 30 licences across eight countries. In March 2021, Tullow committed to becoming Net Zero on its Scope 1 and 2 emissions by 2030. The Orinduik Block lies 170 kilometres (km) offshore. Tullow owns 60% operating interest, while Eco-Atlantic has 15% working interest and TotalEnergies/Qatar Energy JV has 25%.
