Tullow Oil plc (TLW) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to Tullow Oil plc 2020 Half Year Results. [Operator Instructions] I would now like to hand the conference over to your speaker today. Rahul Dhir, the CEO. Please go ahead, sir.

All right. Thank you. Good morning, everyone, and welcome to our virtual 2020 half year results presentation. Apologies for the late start. Inexplicable technology issues. My name is Rahul Dhir, and this is my first interaction with you all since I joined as CEO 9 weeks ago. I'm also joined with my colleague here, Les Wood, who you know. He's our CFO. I'm sorry, we -- this is an unusual sort of way to introduce ourselves. We can't see you in person today. But I look forward to meeting many of you in the coming months. I wanted to start with just a brief background, and I promise I'll keep this short, on myself. So I've been in the business for over 3 decades and have done many different things during this time. I started my career as a petroleum engineer, spent the first 6 years working across in the North Sea, in North Africa and also on unconventionals in the U.S. Then I was an investment banker for 12 years, working pretty exclusively on energy. I started in New York and then spent most of my time here in London, initially at Morgan Stanley, and then I ran the energy group at Merrill. And then for the last 14 years, I've been a CEO. I started with Cairn India, where we grew the production to about 200,000 barrels a day, operated production. Then for the last 7 years, I've been working exclusively in sub-Saharan Africa, where I set up at Delonex, which is a private funded -- private equity funded company along with IFC. Stylistically, you'll see, and as you get to know me better, is I'm a hands-on leader and with the experience. I've worked across the entire oil and gas value chain, including exploration, development and production operations. And given my background and recent experiences in private equity, you'll hear a lot from me on costs, on capital discipline and value. And also, I've spent a lot of time in emerging markets. So it gives at least a tremendous amount of focus on the value of relationships as we work in these areas. I love this industry. I've been in this for a long time. It's a great industry to be part of and to invest in, I would submit that to you, as long as I think it's important we recognize some key principles. First is it's a volatile industry. So we can't predict the prices, and we need -- we run the business, therefore, for volume and costs. It's a capital-intensive business. So you only create value by investing sensibly. And again, you'll hear Les and I talk about capital discipline, which is key. It's a complex business and requires a focus on both safety and reliability. We're in emerging markets. We don't work alone. Relationships are key with our host governments, with partners, with suppliers. And also, very importantly, we have to create value for our host countries and our communities. And particularly on this, I'm very proud of Tullow's focus on shared prosperity. Climate change obviously is real. But I believe, for the foreseeable future, in the word hydrocarbons. Our industry is an integral part -- particularly the countries we operate in, it's an integral part of the economic and social framework of the countries we're in. So we have to learn how to minimize and offset our environmental footprint and our impacts and we want to work to the highest standards of governance. So these are some kind of personal principles I just thought, given it's our first kind of interaction, I just wanted to lay out for you. Just to give you an overview, for those of you on the phone, Slide 4. On the operations, we've delivered strong performance, I would say, in H1. In Ghana, in particular, the performance is pleasing. And I have to say, we appreciate all the help we've had from the government of Ghana for their support for 2 main things, for the gas offtake, but also for the management of the pandemic. The non-op business has performed well, though recent production in Gabon is now impacted by OPEC+, the mandated cuts. Financially, it's been a tough first half. It's the worst market conditions I've ever seen. But we've weathered it well. A lot of self-help has happened, and we've improved operations and we continue to reduce our cost base. Our business will be -- should be cash-flow-neutral for the year at current prices. But you'll see there are always working capital uncertainties, particularly around the timing of the cargoes. On portfolio management, that remains an important focus for us. And you'll hear us, both Les and I, talk more about that. The Uganda sale is progressing well. We continue to target over $1 billion in asset sales. But as you all know, the market conditions, they remain pretty challenging. We've had -- we have a good portfolio. We've had several inbound inquiries, and we're considering those carefully. But remember, any sale that we would consider would have to be accretive to value and should enable us to reduce leverage. And also, on exploration, we continue to rebalance our exploration portfolio. Strategically, now I've been around in situ for 9 weeks. I spent a lot of time carefully assessing our business. We definitely have very high-quality assets. And what I mean by that is we've got material resources across in Africa. We've got low operating costs, and we're working harder to reduce those further. And we've got a deep portfolio of investment opportunities. We're now developing plans to unlock more value from these assets. You'll hear us talk more about that. But importantly, we'll share details on these. We plan to host a Capital Markets Day later this year. Let me then move on to just highlighting our 5 key business priorities. That's on Slide 5. Firstly, on safety and reliability. I've been impressed with the focus we have at Tullow on strong safety culture and on systems, and we will continue to work hard to improve our performance in the area. We want to compete, and we want to compete and win in a low oil price world. This will require us to run our business at -- and to be cash breakeven at below $40. You'll hear us talk about the progress. We're making good progress on this. We're also focused, and you heard me say this before, very -- we are focused on developing plans to capture the full value potential of our business. We're looking at every aspect to uncover every source of value. And this will not only, we believe, deliver value for you, our shareholders, but it will also unlock value for our host governments, especially in Africa. As I mentioned before, we'll share these plans at the Capital Markets Day later this year. And then we do need to fix our capital structure. We have a menu of options we're considering, and you'll hear both Les and I talk more about that through this presentation. Finally, but importantly and equally, is our commitment to sustainability and shared prosperity. I believe this sets us apart, and it will remain an important priority for us. Just moving on to give you an overview on health and safety. Firstly, obviously, in COVID, we -- in Ghana, we've managed the challenges from COVID-19 quite well. We've had very strong support from the government. We've had outbreaks on offshore that impacted both the FPSOs, but we managed these very effectively. And there's been no impact, I'm pleased to say, on our production. And we've had people who have contracted the virus, but they've -- again, we're very pleased to say, they've all recovered quite well. Safety is a big priority for me, but also for Tullow. It's deeply embedded in the culture here. The statistics for 2020 have worsened, but they've been impacted by a number of -- a small number of noncritical events. And let me just share a little bit on that. So we measure 2 key metrics. So we look at lost time injuries, where we've had 2 lost time injuries: one was in Cote d'Ivoire during an onshore seismic campaign. There was a bee sting. And the other one was in Ghana on the Maersk Venturer drilling rig. The other statistic we measure is recordable injuries, and we've had 4. Again, there are 2 on the onshore seismic in Cote d'Ivoire and another 2 on support vessels in Ghana. So what you'll note is that none of these incidences were on Tullow-operated production facilities. But having said that, we want to assure you that we continually review. We refresh our approach to safety management for all our operations. Let me then move on to Ghana operations. That's on Slide 8. You'll remember last year, 2019, was a difficult year for the company, and our expectations were reset. 2020, in contrast, the first half, our operations have performed well. The year-to-date performance has been over-budget, and that's driven by 2 big things. It's to -- very excellent well performance and facilities management. So Jubilee currently is producing over 80,000 barrels a day and TEN is at about 50,000 barrels a day. That's gross. Facility time -- uptimes on both of these fields has been over 96% for this year-to-date. Now let me talk a little bit about Jubilee. The Jubilee production has been supported by well optimization. So as older wells have matured and water cut has increased, we've had better ability to bring on wells with high gas oil ratios, high GORs, to maintain production. And what that has resulted is a more balanced source of production. And you'll see this in the chart, the diversity of the wells that are delivering the production, that's illustrated in the chart on the right. Also, earlier this year in Jubilee, we created a task force. We're working with our JV partners. This task force was focused on water injection. And as a result of their efforts, the injection has now increased to 190,000 barrels a day versus -- last year, we did about 110,000. And why that's important is with higher water injection, we've been able to improve reservoir pressure, and that helps kind of stabilize the gas-oil ratio. So that sort of loops back into our ability to optimize well performance. Another important factor that's been driving production performance in Jubilee has been improved gas management. To give you a sense there, it's -- we've -- gas production currently is about 190 million scf per day. And the way we manage this is about 110 million, we've been able to export since mid-May. So 110 million scf a day is being exported. About 30 million scf is flared, and another 30 million to 40 million is injected. And that ability to manage the higher gas volumes, again, goes back to our -- enables us to produce high GOR wells. And also, very importantly, over time, this will help us improve recovery as well. TEN, as I mentioned before, is producing about 50,000 barrels a day. So remember, TEN has got 2 fields: Enyenra and Ntomme. TEN, we've had very, again, high facility uptimes, over 98%. We've had well optimization, similar story to Jubilee, in -- and that's helped reduce the impact of the NT-09. If you remember, NT-09 is delayed by about 3 months due to operational issues while we were drilling it. It's onstream now. And -- but the uptime and the well optimization has helped manage the impact of that. Enyenra is better-than-expected performance, again, because we've been able to optimize that. And Ntomme, we've had -- we've been able to sustain production because of of gas injection. Moving on to an important slide, carbon emissions. We monitor our gross operated emissions, and we look at mix of fuel gas, of diesel, of logistics; and logistics comes from marine vessels, aviation; and we look at venting and flaring. So across the board. And unfortunately, there's been a big uptick in flaring this year. That's been part of, as I said, the gas management that I talked about earlier. It's been necessary to do this to manage reservoir performance and also to allay the impact of excessive gas injection in the past, if some of you would be familiar with it. We see this as a short-term issue. We are -- and we're strongly committed to reducing the emissions on a sustained basis. And we're developing investment plans to reduce the emissions in the medium term, and this is integrated into our business planning effort. And we'll share more details at the Capital Markets Day. Also, we're preparing a net-zero delivery plan. And that -- as part of that, we'll consider decarbonization options as well. There's active engagement from our Board in this, and we'll look to get approval of that towards the end of the year. And then those details, we'll share with you most likely at the results -- the full year results presentation early next year. Now I talked about Ghana from an operations perspective, but what is also exciting is the development. And that, I'll cover in Slide 8 (sic) [ Slide 10 ]. And if you take a step back, so Jubilee, if you think about it, it's a 1.8 billion barrel oil in plays field, and TEN has nearly 1.1 billion barrels. But remember, only less than 15% of this oil has been produced. So what you have is -- you've got to imagine, you've got 2.5 billion barrels of oil in plays left. You've got an extensive infrastructure in place with 2 FPSOs. So what you -- what that gives us is a very deep, a very diverse inventory of investment projects, infill wells, small development projects. And with the infrastructure in place, the incremental economics of these projects become very compelling to get high returns, quick paybacks. And importantly also, these projects create very significant value for the government of Ghana. So that's very exciting. That gives us also the confidence then, that work, to look to restart drilling in Jubilee next year and to also consider accelerating Jubilee South-East. And there's a lot of work that we're doing. We're leveraging a lot of the knowledge and the experience that we have in the assets, but also some fresh thinking. And where this is sort of manifesting is, for example, if you take Jubilee South-East, by thinking differently there and using kind of new ideas, expertise of our partners, external experts, we've been able to kind of redesign that project to make the returns. It's always a good project, but we've been able to redesign that to make it more compelling. So we look forward to sharing a lot of these plans at our Capital Markets Day. If I move on to another important part of our business, which is the non-operated portfolio. I really like this business also as well. It's a diverse set of assets with some very experienced operators. You could see this as a kind of steady-state business with somewhere between 23,000 to 25,000 barrels a day production. They're mid- to kind of late-life assets so the operating costs are a bit higher. So they're done at about $18 a barrel. But what is interesting about this portfolio is it's got a diverse set of investment opportunities. The project's obviously smaller than we have in Ghana. But again, they're very highly capital-efficient. We have high returns, very quick paybacks. And we see that we have the ability to sustain production with about a run rate of about $100 million a year of CapEx. So that's roughly $11 a barrel. So when you look at that, it's a business where, at less than $30 a barrel all-in cost, you can operate and sustain the production and deliver cash flows. The only sort of caveat here is in the short term, we are facing OPEC constraints and restrictions in Gabon. Just moving on to our exploration portfolio, and you'd be familiar with this. We've had very large equity positions in mostly, I would say, frontier, sort of less mature basins. And that gives you limited visibility in realizing value in the near term. And it's quite a -- was quite a diverse portfolio, across 24 blocks. Now what we have done is a significant amount of high-grading through a comprehensive review, and that's resulted in a much more focused portfolio. And it's -- currently, we're at about 15 blocks, but we suspect there's more to be done on that in time. I think whilst refocusing, we retained sort of emphasis on what is the core scale of the team, which is around passive margin plays. We're spending a lot of time of better understanding the 2 blocks in Guyana, so Orinduik and Kanuku, where we're integrating the results of a lot of the drilling that's happened, not just by us, but by others. And that's going to help us develop an inventory across the 3 major plays there. So the 3 ones, if you're not familiar with, are -- there's an upper tertiary play, there's a tertiary canyon play and another one on a cretaceous slope turbidite plays. So the focus there is going to be on identifying drilling candidates. We don't have any firm drilling next year in Guyana. We have -- there's -- Kanuku, I believe, is a firm well commitment in 2022. So there's a lot of work really on intellectual capital going into Guyana through this year and next year. We're drilling, as you know, a well in Suriname next year. We'll likely spud in February. There's a lot of work, again, done to leverage our understanding based on the results we've seen from Apache and Total. It's a different basin. It's targeting a late Albian/Cenomanian play. And again, it's something that we're quite focused on. Other activity is -- again, we've scaled back our exploration activity quite dramatically. So next year, really, the main activity we're going to have is a lot of intellectual capital and understanding our various blocks, looking to high-grade further the Suriname well. And then we're finishing a multiclient 3D in Argentina, where we've got a deep fan play in the cretaceous. So we -- what you'll start to see us do a lot more is be very disciplined with -- and selective with our exploration efforts. We have exciting blocks, but we want to leverage also our expertise in creating value in the countries that we're dominant and creating value where we have existing production and leveraging that. Moving on to East Africa. First, let me start -- we're very pleased with the progress that we have in Uganda. So that sale process is progressing well. Having worked in a lot of emerging markets and seeing a lot of these processes, I've been impressed actually with the collaboration that we're seeing between all the parties, and that's including the relevant government agencies. There seems to be a clear desire to get the deal done, so we expect to complete this in Q4. In Kenya, you would have seen we have lifted the force majeure, and we now received a license extension from the government. So we're working very closely with the government, with our JV partners to see if we can redefine the project to make it investable in a low oil price world. So whilst we're doing this comprehensive review, we've obviously suspended the farm-down process for now, and it will make sense for us to review our strategic options once that review is done. So just moving on to Slide 14. It's -- a big priority for us right now is to deliver a conservative and a sustainable capital structure and to manage our debt maturity. So that's a work in progress. And the best way, I would say, that for you to think about that is to understand that we're working around 3 which is sort of parallel and inter-related kind of work streams. So what these are, they include asset sales. So obviously, good progress on Uganda. We're going to consider other opportunities, but also be very disciplined about that and only focus on those that are accretive in value but also help us reduce leverage. So that's kind of one strand. The second is we want to maximize value and cash generation from our assets. And I talked about kind of uncovering sort of every source of value that we have. And that's a combination of looking at where do we have investment opportunities, how do we make those better, but also taking cost out of the system. And Les will talk more about some great work that's going -- that we've done already to reduce our costs on a sustainable basis. And the last is going to be where we evaluate a broad range of refinancing options. And that's still kind of work in progress right now. As part of that, obviously, we're engaged proactively with our RBL banks on the upcoming redetermination. And Les will give you a lot more color on this and other things we're working on in his section. So that's probably a good segue then for me, Les, to hand over to you.

Perfect. Thank you. Thanks, Rahul. And good morning, everyone. Before I take you through the numbers, it's worth reflecting on what we all recognize as being an extremely challenging first half globally. If you look at oil markets, Dated Brent just reached a low of only $13 per barrel on the 21st of April. In fact, it averaged just $18 per barrel in the month of April and only $29 per barrel in May. Industry differentials for West African crudes fell to a low of minus $9 per barrel as we saw unprecedented global demand disruption and the issue of tank [ tops ] became prevalent in the month of May. While we've seen some recent modest improvements, oil price continues to be volatile, and of course, economic recovery remains fragile. I'll move on to Slide 16, which covers the numbers. Despite that challenging external environment, our business has performed well in the first half of 2020, delivering strong operational performance, as you heard from Rahul earlier. Revenue and EBITDAX are lower compared to 2019. That's primarily driven by a lower year-on-year production, and of course, the adverse impact of oil prices that I've just mentioned. That said, our first half revenues have been underpinned by $131 million of net hedge receipts, giving a realized Brent oil price of $52 per barrel. This includes the impact of the differentials, which I mentioned, in April and May, which was significantly below what we usually achieve for our West African crudes. We've taken decisive actions on all aspects of our cost base, which I'll come onto a little bit more detail shortly. The loss after tax of $1.3 billion is primarily driven by oil price-related impairments of $400 million, and that's primarily in our TEN asset, and exploration write-offs of $900 million primarily in Uganda and Kenya. Capital expenditure was first-half-weighted with a full year forecast of $300 million, in line with the revised target that we set out our results earlier this year. And that's down 40% on 2019 level. Free cash flow for the first half is minus $213 million, and that's driven by a number of first-half-weighted items, which include some of the following: capital, as I just mentioned, where in the second half, we'll have less. For example, the Maersk rig has now been released from Ghana in August. And we have seen and we'll see the fall of certain activities in Gabon due to the impact of COVID-19. We also saw in the first half around $50 million of 2019 accruals. Timing of cash payments is first-half-loaded. We got 75% roughly in the first half versus 25% in the second half. The negative impact of the oil differentials I mentioned, in 2Q, which we're not forecasting will repeat in the second half. We also had redundancy costs as part of all the organization reductions that we've pursued, and then the usual working capital, including timing of JV receivables. However, we do forecast to recover some ground in the second half and expect to be around free cash flow neutral for the full year at current prices, subject, of course, as Rahul said earlier, to the usual working capital impacts and some uncertainty around cash flow, only because of the timing of [ lifting ]. That doesn't say anything different about the underlying performance of the business. It's just timing. Consequently, net debt has increased slightly to around $3 billion, and gearing of 3x was primarily driven by reduced EBITDAX. So now let me turn to costs on Slide 17. As Rahul said earlier, it's crucially important that we run our business efficiently and cost-effectively so that we can thrive in a low price oil environment. While we already have relatively low unit operating cost asset base, as you will see from this chart, we know that we can and we will do even better. While the total repair on the Jubilee FPSO has been completed, we're still incurring costs related to temporary shuttle arrangements in the field until we complete installation of the offshore loading buoy, now expected to be in 4Q 2020. Installation was delayed due to COVID-19 concerns on operations earlier this year. If you break out all the current and COVID-19 related costs, as shown on the chart here, underlying operating costs reduced by around 15% from 2019 and around $10 per barrel on a unit basis. We've taken advantage of the support and challenge of independent experts to help us focus on where we can further reduce our operating costs and have prepared concrete plans to make sustainable reductions. As you can see from the chart, it's not -- 2020 is not yet reflective of what we'd call a steady-state operating conditions. Once we've implemented our plans, we expect operating costs to be even lower, and we will say more about this at the Capital Markets Day before the end of the year. Now to Slide 18, and I'll say a little bit more about the costs of our organization. As you will recall, we talked a lot about this at our results presentation earlier this year. But as part of the business review, we identified significant opportunities to create a more efficient and effective organization. This work has continued, and in fact, has intensified over the course of the summer. So we now believe we can go even further than before. Much like operating costs, we benefited from the challenge and support of external experts. We've also had broad engagement within the organization, with many of our people providing input and ideas. And all of this has helped drive us clarity in what we need to address going forward. As a result, the restructuring of the cost base is well advanced. For example, our offices in Dublin and Cape Town have now closed, and our financing and supply chain processes, the outsourcing of that is already up and running. We expect to deliver sustainable cash savings of over $125 million per annum from '21, and that's across OpEx, CapEx of what we call the corporate, i.e, the net G&A. This will allow us to realize cash G&A savings of over $350 million over 3 years. And this is well in excess of the previous target which we set out earlier this year. Clearly, in doing all of that, there's been many difficult decisions to make, but these have been absolutely necessary to create a cost-effective organization. We expect that the annual cost of our organization gross to be around $160 million from 2021 onwards, with a mindset that is very much focused on delivering effective and efficient low-cost operations. Now I'm going to move on to Slide 19 and say a little bit about capital. As you will see from this chart, there's really 2 parts to this story: in some ways, dealing with the historical high level of spending and then having to maintain this strict capital discipline that Rahul talked about going forward. On the left-hand side of the chart, as you are aware, we have taken material noncash impairment write-offs in both 2019 and also in the first half of 2020. As with much of the industry, these impairments have been driven by significantly lower short-term and longer-term price outlooks. And in the case of TEN projects specifically, this was a project that was sanctioned, built and delivered in $100-plus oil price cost environment, but now producing in an oil environment which is just half of that. As a result, our assets are now carried at the appropriate value for the new oil price reality and longer-term moderate oil prices. And you can see on the right-hand side a detailed breakdown of capital expenditure and a significant reduction compared to 2019. This demonstrates something I've talked about before, our ability to reduce spending to respond to the low oil price environment. And we're very much delivering in line with the target that we revised earlier this year of $300 million. We'll be saying a bit more about the quality of our future investment opportunities at our Capital Markets Day later this year. As Rahul said earlier, we have good assets and are intent on capturing their full potential. As we do this, we'll be focused on capital discipline. Our capital will be targeted towards our producing assets. We will be taking advantage of our low-cost base, and of course, focusing on executing our activity as well. We'll be derisking and unlocking value in our exploration, as Rahul laid out, and only spending the minimum of amount in Kenya as we rework the project to be economic in a low oil price world. The good news is we do have lots of flexibility on the capital looking forward, and we'll be seeking to maximize the value of our asset base. I'm now going to say a little bit about 2020 guidance using Slide 20. The first thing to say on 2020 guidance is it's essentially unchanged, with one exception on production, where we have narrowed the range from 71,000 to 78,000 previously to 73,000 to 77,000 barrels per day with the midpoint production forecast unchanged at 75,000 barrels a day. This is due to the sustained strong operational performance both in Jubilee and TEN, including the successful start-up of NT09 and despite the adverse impact of OPEC+ cutbacks that we're feeling in Gabon. Clearly, there continues to be significant volatility in oil markets. So as I said earlier, we are forecasting to be free cash flow neutral for the year, which takes account of the one half and second-half-weighed things that I described earlier. Saying a little bit now on Slide 21 about our capital structure priorities. Obviously, as we move into 2021, we have a number of important priorities. One of these, of course, is dealing with our capital structure and medium-term priorities. As said, as I've talked already about costs, Rahul has already talked about value, and both will be important topics at our Capital Markets Day. In addition, we set out earlier this year an intent to raise in excess of $1 billion of proceeds. The first step in that was the deal announced with Total on the 23rd of April for $575 million in cash. And of course, that's a very important first step in realizing that. We do continue to target further asset sales despite the challenging [ internal ] environment, provided they are both value-accretive and strengthen our balance sheet. We currently have liquidity headroom of around $500 million, based on $1.9 billion of RBL debt capacity agreed with the banks back in March. We've recently started discussions with our banks for the September redetermination, which is currently ongoing, and we've concluded that we will complete another redetermination in January. And the purpose for that is to fully reflect the impact of our new business plan, which we will describe in the Capital Markets Day later this year. You will recall that earlier this year, we've also voluntarily reduced our RBL commitments, and that's to be more in line with our current debt capacity. That allowed us to reduce commitment fees and save some money. And as a consequence, we have no RBL commitment amortizations now until October 2021. We did have a difficult start to 2020, and the year have provided further challenges, and for that reason, there's been no financing activity this year. However, as I mentioned earlier, we're now working on various financing alternatives, and these are in parallel with the refinement of our business plan with a strong focus on our medium-term priorities. Then using Slide 22, I'll just say a few things by a way of summary. The team has done a great job in the first half of 2020, and that's despite an extremely challenging external environment. We will adopt a conservative financial strategy to move the business forward and are focused on delivering it. We're already taking steps to improve the robustness of our balance sheet. We're very focused on improving the performance and reliability of our operations, which together, will underpin the cash flow generation from the company. We're already implementing a series of actions to create a competitive cost base, and of course, maximize the value of our assets. We've taken decisive portfolio action, and we are targeting an excess of $1 billion from asset sales. Uganda completion remains very much on track. We will pursue other asset sales, but as I said, for only the right value and to strengthen the balance sheet. And we are considering various alternatives in parallel with firming up the business plan. And I believe all of these things together will create a greater resilience for our business in what is certainly an increasingly challenging and volatile world. And with that, I'll now hand back to Rahul.

Okay. Thanks. Okay, Les. And as I said earlier, I've been in the office now for just over 9 weeks, and I've been impressed and encouraged by the underlying quality and the potential of our assets. And as I explained further, and we'll continue to illustrate, we're working hard now to define our plans for the business. We're working closely with our partners. We're speaking [indiscernible] challenge and validation of our plans. Because the work that we're doing is across kind of -- the way you think about our business, is across 4 key kind of asset -- or 4 key aspects of our business. Firstly, Ghana, we're taking actions to sustain the current operating performance. It's been good but we want to sustain that. We're looking to define the investment opportunities. On the non-op side, we're working closely with our partners, our operators to deliver sustainable cash flows. In exploration, we're assessing the potential and then looking at the best way to unlock value. And Kenya, which is a large resource, we're working hard to try to make it work at low oil prices. And then we can decide what the best way forward is. So that's the work kind of across the 4 aspects of our business. We have a challenge with our capital structure, but I'm confident that with a relentless, and I'll use that word carefully, focus on operating performance, on cost reduction and all the plans that we have to unlock value from our business, we'll not only address this, the capital structure issue, but I hope also that we can regain your trust. So on that note, I want to thank you again for your time, for your patience. And we look forward to your questions but also hope to engage with you again at our Capital Markets Day later this year. So we're done. Operator, can we open for questions?

[Operator Instructions] We have the first question from David Round from BMO Capital Markets.

Can I ask first about your comment about reviewing development concepts in Kenya, which I assume means you're looking again at a full field development rather than the foundation stage? Is that purely for better returns? Or does it also reflect feedback from the sell-down process, such that you think a new concept might be more attractive to a buyer? And can I also just ask, you've obviously flagged a lot of potential in Ghana. Are you able to elaborate at all on recovery factor aspirations there, particularly given the relatively low pace of activity right now?

So on -- well, thank you for your questions. So I think if you look at Kenya, so the first principle, I think the way the project was configured was it was designed to work in a $50-plus real oil price. And a lot of work has been done. A lot of appraisal activity has been done, as you know, and then also a lot of engagement with contractors sort of leading up to sort of what I call pre-FID work. So what we're doing right now is looking at the cost structure. And I don't know if you're familiar, so I've worked on very similar stuff in India. And we're looking at kind of -- is there other insights we can bring in terms of cost structure, some of the design basis of what we were doing? And also, not necessarily kind of phasing potentially maybe some optimization on that, but also looking at well productivity and then integrating what we've learned from EOPS and stuff like that. So it's a fairly kind of comprehensive look, but it's building on what is a tremendous knowledge base. So that's the kind of mindset. And kind of what we said to the government is -- as well, they were aligned with that, is that first is to kind of make this project compelling, I would say, not just viable, at low oil prices. And then we'll figure out what the best way forward is on that. So that's on Kenya. I think on Ghana -- I -- sorry, I forgot the specifics of your question. So it is?

The potential and recovery.

Yes, sorry, on recovery factor. So again, these are amazing kind of world-class reservoirs. And what we are doing is looking to see how do we maximize recovery, how do you accelerate -- how do you bring more production into the license period, how do you bring your cost structure down so that the investments are -- I mean, generally, the investments are quite compelling, but how do you make them more compelling. Looking at -- for example, can we get standard reduction in our drilling costs, looking at reconfiguration of projects. So that's kind of the flavor. But again, we'll give you more details. We're bringing in some outside expertise as well from an engineering perspective to see how do we maximize recovery. But these should be high-recovery fields. And so details, I think I'm afraid we'll have -- you'll have to wait until the Capital Markets Day.

The next question came from the line of Mark Wilson from Jefferies.

I'd like to ask, firstly, on Ghana about -- good news. You've got the Ntomme-09 well. But as regards to a return to drilling there potentially in 2021, is that the plan for 2021? And may I ask what would a year's CapEx of a rig operating in Ghana look like in these current markets? And then also on Ghana, can I ask about the certainty of gas offtake from here for that 110 million scf a day? Do you have an agreement for that to continue indefinitely? On Kenya, sorry to just [ butt in ] -- the termination of the farm down, it seems like a new bit of information. Could I ask if that farm down was part of the $1 billion proceeds? And if it wasn't, how does that sit now if you're continuing with that target with the farm down turning negative?

Okay. So I think we're -- what we're doing, Mark, is we are looking in Ghana at a sort of investment opportunity set across both Jubilee and TEN. And as I said, we're going back to kind of design basis on the well designs. We're looking at kind of project configuration. So Jubilee South-East, I talked about that. So we're pretty confident we're going to start drilling next year. It's hard to give CapEx guidance yet because we're just kind of going through the tendering process and also trying to figure out timing of when we resume that. So that -- we'll give you guidance on that at the Capital Markets Day. I think in terms of gas offtake, it's been a good experience this year. We've had sustained delivery from our side, and we've had a fairly consistent offtake from the governments. We're looking to kind of extend that. I think, again, we'll give you a status update -- these things are done kind of -- not kind of on a sort of infinite time frame basis. It's done sort of period-to-period. So we'll give you an update again at the Capital Markets Day. But generally, we feel there's tremendous amount of value created for the government, obviously, through the sales, but also because it enhances our ability then to optimize production and maximize recovery. So those 2 on the Ghana assets. In Kenya, again, it's -- what we are looking -- so we've not terminated the process. It's just suspended. Like I said, it makes sense if we're going to redefine and reconfigure the projects. So it's better to kind of pause on that and then to restart. The work required, I don't think, is very massively time-consuming. So we're on the case now working with Apache and Total to get that reconfiguration done quickly, and that allows us then to take a relatively quick decision on the way forward in Kenya. So that's kind of to give you a sense of -- I don't have like a time frame precisely. With respect to asset sales, again, what has been, and I'll defer to Les' kind of view on this as well. Look, we've had a -- I've been explaining, we have had a lot of inbounds across our assets. We have good quality assets. Now I think -- and people -- this is -- our situation is not a kind of secret to anybody. What we are being is very disciplined in terms of what we consider. We want to make sure it's value-accretive. We want to make sure it's accretive to our -- or helps us delever. So those are kind of key principles. And also, I hope to get a sense like -- we've taken, as Les talked about, $130 million of costs on a sustained kind of annual basis. I mean, you capitalize that, you guys are better than we are doing that. That's a big number. So that gives you -- that, coupled with the progress on Uganda, I think, gives us the confidence that, whilst we want to continue with the asset sales, we want to be thoughtful and not rush into stuff. Les, do you want to comment?

I think it's exactly that. And as I said in my commentary, lots of inbound, but it will be value accretion and strengthening the balance sheet. We're not going to do a fire sale on assets here. And it's been both pleasing and gives us choice, the amount of interest that we've had, precisely as Rahul said.

The next question came from the line from Rachel Fletcher from Morgan Stanley.

It's Rachel Fletcher from Morgan Stanley. I have one question, please. In the results statement, you mentioned a forecast breach of the RBL gearing covenant and potential waivers. I was wondering if you could talk a little bit about that and potentially give some guidance on 2020 net debt levels or gearing ratio guidance for the year.

I'll take that, Rahul.

Yes, Les, please.

So on the gearing covenant, that's right, we expressed that in the going concern statement. In fact, actually at the half year, and this has just been an unfortunate situation with many of us who have these types of facilities, because of the oil price, EBITDAX, and therefore, our gearing -- sorry, our net debt level, we have an elevated level of gearing. Now we have -- looking back, we've secured these covenants previously. And in fact, at the mid-year, we had a waiver on the level -- elevated level at the middle of the year. So past track record would say that we kind of -- we don't take that for granted. That will be a discussion with the banks, and it will be something we're covering in the September redetermination, which is ongoing right now. So that's a -- and it's -- actually, it's in the commercial interest of both ourselves and the banks that actually that's the step that's taken. But like I say, that will be a discussion for September. We are currently at around $3 billion debt at the half year. We will be free cash flow neutral on the year. Therefore, that just gives you an indication of where we'll be for the full year. So obviously, oil price will determine what the EBITDAX will be, but that just gives you a flavor.

The next question came from the line of Chris Wheaton from Stifel.

Rahul, welcome back to the London market and then best of luck in your new role as Chief Executive. I wish you all the very best.

Thanks, Chris.

A question for Les, if I may. Could you talk through perhaps the reason for bringing forward the redetermination in first quarter of next year from March to January? Because I can't see the reason why you would voluntarily give up 2 months' time when time is almost as much your enemy as the oil price is at the moment. And that also then potentially brings the risk that if Uganda hasn't completed by then, that's a much more difficult conversation to have with your banks perhaps than if it was to happen in March. And Uganda being -- completion being delayed beyond the year-end is not an unreasonable potential outcome. Could you perhaps talk to your rationale for doing that?