Tullow Oil plc (TLW) Earnings Call Transcript & Summary

Good morning, everyone. Well, firstly, sincere apologies for the delayed start. Candidly I don't actually know that there's some technical issue with the audio system. But anyways, to get on with the results, firstly, I hope you're all well and weathering the turmoil in the markets. And as reflecting, it's, once again, kind of be reminded about the potential for the tremendous volatility in our industry. But the importance, I think, for us as Tullow is a reminder of having a resilient operating model. So I think those of you who've been around with us on the journey, you remember in November last year, we set out a new strategy and a 10-year plan for Tullow, which was really aimed at turning around the business and creating meaningful value. So, today, Les and I were delighted. We'll update you on the progress on that. We'll also share our plans for this year and outline what we believe is a very clear path for value creation. So let's go on to last year. 2021 is really kind of a year of very profound change and transformation for us. We began the year. I think this time you remember, we were talking about refinancing with our lending banks and bondholders, but we managed to successfully refinance the debt. We put in place longer maturities. We protected the equity. And all of this are kind of providing headroom and also time to invest in the high return opportunities in the portfolio. Now, you'll remember the refinancing itself was driven in large part by the very substantial self-help we've done both in terms of OpEx and G&A cost reductions, the asset sales and the strong operating performance. And of course, it was supported in part by the improved market condition. So how are we doing on the business plan? The delivery of that is progressing well. So, in addition to the very strong operational performance that we have, which is evidenced by high FPSO uptime, gas offtakes, water injection, we also drilled and completed 4 wells. So 3 of these were at Jubilee and one is at TEN and we completed 1 workover in Ghana. And all of this then allowed us to deliver, particularly Jubilee kind of very notable production growth. So we started the year in Jubilee at about 70,000 barrels a day, and we ended the year last year at 90,000 barrels. Now you've heard me talk about this before. We've got a very deep portfolio of high-return opportunities across all our assets. So this year, we're investing in all of these actually to deliver sustained and visible growth. I'll share more details of these in the operations section. So I'll come back to that after Les has shared the financials. But the other thing I wanted to share with you is that what's interesting about our business today is that we're working on some very material opportunities that could drive value. So I'll give you a few examples. So, you know we're exercising -- we exercised our preemption rights on the sale of Occi's assets to Kosmos in Ghana. And it really underscores our confidence in the potential of these assets and will have a significant impact on our production and cash flows. The successful delivery of the Jubilee O&M transformation, that will enable us to sustain the improved operating performance, but it'll also be a catalyst for further reduction of operating costs. I'll talk later about the commercialization of gas resources in Ghana, which will not only drive value for us, but very importantly deliver energy security and catalyze economic development in Ghana. And in Guyana, we have a very exciting well, which is planned for midyear. And finally, the reworked development plan that we have in Kenya is set up so it delivers not only value for us, but much more value for the nation and it's investable in low prices. So, through the presentation today, Les and I will share with you an updated view on the business plan and demonstrate kind of how it delivers visible growth and also how it helps accelerate deleveraging. And critically, that acceleration of deleveraging will provide us the opportunity to reduce our debt levels and to refinance. I think it's important also to reflect our industry very much is in flux as a lot of people, including us, trying to figure out how we play the energy events. Now we spent time last year on this thing, and our view is very clear. So as long as global hydrocarbon demand exists, we believe it's imperative that Africa's oil and gas assets are managed responsibly. They're managed efficiently and they are managed transparently to deliver kind of much needed economic and social benefits in the continent. Now we've been in Africa. Africa as a home. We've got a long history there, and we believe we're very uniquely positioned. Now with the target to achieve net zero by 2020 with an emphasis on responsible operations, what we're really committed to is ensuring that the oil and gas resources of our host countries are developed efficiently and safely, while minimizing the environmental impact. And I think through this work, we'll deliver shared prosperity, but also create value for investors kind of staff host nations in our communities. And I think I just want to kind of just also pause and reflect on the kind of really remarkable commitment of the Tullow team. People have really taken to heart a mantra, we talk about the strategies, but it's important to say, look, every barrel matters and every dollar counts. And it's super inspiring for me to see the huge enthusiasm people have in delivering excellence in every part of the business. So, I feel pretty confident in new Tullow. We're very well positioned for the challenges and the opportunities that our industry brings and we really appreciate the opportunity to talk more about this with you. So let me now hand over to Les, who'll talk more about the financials.

Thanks, Rahul. Good morning, everyone. I will first cover our 2021 results. Then I'll briefly describe the financial impact of the delivery of the business plan. But first, let me reflect on the delivery of financial strategy. As you can see from the achievements that I stated on this slide, 2021 was indeed a transformational year. We successfully completed the comprehensive refinancing of our debt, of course, back in May, and that's now left Tullow with no near-term debt maturities. This was underpinned by $1 billion of self-help that Rahul reflected on completing asset sales and a significant sustainable reduction in our cost base. And we have, as Rahul said, we've embedded a performance culture where every dollar counts and every barrel matters. We made a strong start to delivery of the long-term business plan that we'll lay back at the end of 2020. And this now provides us a solid foundation to further strengthen the balance sheet while growing our business to deliver value. Now I'll say a little few words around the numbers themselves. As you can see, our business performed well last year. And this was underpinned by continued strong operational performance, as you will hear a little bit later from Rahul, with another year of free cash flow generation, which resulted in further deleveraging with net debt down about 10% and gearing approaching 2x. We also entered the year with around $900 million of liquidity headroom with an undrawn $500 million corporate facility and almost $400 million of cash flow on the balance sheet. And overall, these numbers represent a strong financial performance. Then on the following slide, it shows a simple articulation of our capital allocation framework. We continue to prioritize the leveraging to strengthen the balance sheet. And we'll talk a little bit -- we do have a deep inventory of investment opportunities, which are focused on our producing assets, which have high returns and short paybacks. In fact, if you look at our 2021 Ghana investments, these have already paid back within 12 months and investments that we're going to make in 2022 will do so in less than 2 years at $75 per barrel. Our capital investment activity is self-funded with the flexibility to respond to the external environment as we did this year. We're open to inorganic opportunities, but with the discipline that they must be value accretive and demonstrably deleveraging. A good example of that was our decision in November last year to preempt the Oxy-Kosmos transaction in Ghana, which meets both of these criteria. And now to something which will be on everybody's mind, which is commodity price. And in this case, commodity price risk management. Hedging continues to be an important tool in our financial risk management strategy. As part of the refinancing last year, we committed to build on our existing hedge book with 75% and 50% downside protection per year from May '21 to May 2024. To put this in perspective is approximately 30% of our anticipated production out to 2025 and obviously front ended. This slide provides a good summary of our 2022 hedge position. On the chart on the left-hand side, you will see that we have 75% floor protection, but we do have 40% access to the upside as 15% of what we put in place was street foods. This then translates to the chart on the right-hand side, which shows that while we have good downside protection, we retain meaningful upside exposure. This was illustrated in January and February, where realized price after hedging was around $89 per barrel, which banks around $70 million of incremental cash flow. Our exposure to price upside will increase to around 45% following completion of the Ghana preemption. And active free cash flow outlook for this year. We secured a $75 million Uganda FID payment from Total in February. We started the year with a strong realizations that I just mentioned in January and February. And despite the adverse Norway arbitration decision last month, we maintained free cash flow guidance of $100 million at $75 per barrel. And as you can see from the right-hand side chart, where we retain upside exposure from a sustained constructive oil price for the balance of 2022. So at $95 per barrel for the balance of the year, we're forecasting close to $200 million of free cash flow, as always, subject to year-end working capital movement. And now to free cash flow potential for the business plan delivery. At the Capital Markets Day in late 2022 -- sorry, late 2020, and more recently in the first half 2021 results, we described a strong cash generator percentage of our business. We expect to grow operating cash flows high return, short payback investment opportunities and our producing assets to deliver production growth. And we're doing this with a continued focus on costs. We expect decommissioning costs to drop significantly in 2023. And we also seek to reduce our annual financing costs through the financing as we reduce debt in a constructive environment. So what does this all mean for deleveraging? So there are a couple of things to take away from this slide illustrated by the 2 charts. First of all, on the right-hand side, we have a deep and flexible inventory of projects, and these will deliver value. And as said, 90% of those are focused on our producing assets. At $75 per barrel, we've reached or getting target of less than 1.5x by the end of 2023. And by way of illustration, once we've completed the Ghana preemption and if we were to have a flat oil price of $100 per barrel through to 2025, that free cash flow number doubles to around $2 billion. So, a significant exposure in our cash-generative business. So in summary, we've posted a good set of full year results with much to look forward during 2022 and beyond. As many of you know, today is my final results presentation. When I took on the role of CFO 5 years ago, I never quite anticipated that there would be a financial crisis, a pandemic and has a few challenges of our own to navigate. That said, I leave Tullow in good financial health and confident that we're set to prosper going forward. And with that, I will now hand back to Rahul.

Thank you, Les. And certainly, it's been an interesting ride for you. We'll talk more about that separately. But just coming over to commitment and health safety, of course, the first priority for us is the health and safety of our staff, but also everybody who's associated with our operations. And I think, as you know, good performance in health and safety also deeply intertwined with our operational excellence. So what you'll see on this chart is that there's a marked improvement in performance in 2020, particularly as we compare to previous years. But this is despite we had increased activity levels. So you see there were 2 recordable injuries in 2021 versus 8 in 2020, and there were no incidents for loss of primary containment. And it's really -- there's a singular focus on both kind of personal and process safety across the organization, and we've a visible leadership. So these provide a real sort of foundation for a strong safety culture. And specifically how we do this is, we've got the implementation of safety improvement plans, there's active engagement with the contractors. There's a lot of leadership intervention and there's a very good reporting culture. So, I think there's a good foundation for sustained safety performance. Not surprisingly, last year, COVID mitigation was very much top of mind for everybody. So a lot of focus on mitigation measures. We did a lot of scenario planning and also proactively kind of worked on vaccination. So that helped to mitigate the impact on both kind of safe production operations as well as the well-being of our workforce. So today, a majority of the crews are vaccinated. So now the idea is that we learn to live with COVID kind of safely. So moving on to really kind of our vision to create a sustainable future. So when we look at our commitment to environmental stewardship to shared prosperity, equality and transparency. That's really fundamental to our purpose and the operating model. And I'd say, it goes beyond that. It really defines our sense of identity. And maybe the best way, I think, for me to evidence our progress is to highlight some tangible achievements. So, like I said, shared prosperity is really integral DNA of Tullow. And we believe the sustainable development of oil and gas in Africa would build a better social and economic future in our host countries. And for Tullow, this translates into many things. So for example, local content. I mean, if you look back over the last 5 years, we've spent $1.2 billion with local suppliers. We invest a lot in education and skills development. So, for example, last year, we partnered with an organization called the Youth Bridge Foundation to create a Tullow STEM Radio School broadcast. And this broadcasts the STEM lessons and targets over kind of 1,300 high school students across Ghana. So these are just a few examples. On the environmental side, I think you know this, we defined our commitment to net zero for Scope 1 and Scope 2 emissions by 2020, but we have tangible plans. So we're really looking at Jubilee, for example. We're looking at the modifications of the gas compressors. We've got capacity expansions planned in Jubilee. At TEN, we have process modifications. All of this will really help us eliminate all routine flaring on both of the FPSOs. And that probably takes care of about 40% to 45% of our emissions. And the capital for all these is in the business plan, so these are real projects. We're also looking and working with our partner Perenco in Gabon to see how we can reduce and eliminate flaring in Gabon. In addition to this, in Ghana, we're working with an organization called Terra Global and the Forestry Commission to deliver a portfolio of projects. These are nature-based carbon offset projects that will help generate credits to offset at least 600,000 tons of carbon dioxide equipment. Now that essentially takes care of the rest of our emissions portfolio. So it's a clear path of how we get to net zero. And of course, these initiatives there are aligned with Ghana's REDD+ strategy. And also, importantly, they align with the government's resource management and rural development policies. Also, I think it's important to talk about environment. We end up kind of talking about emissions, but I think it's important to also focus on things like how we manage water, how we manage waste and biodiversity. So through the year, you'll hear us talk more about a wider conversation on environmental stewardship. On the kind of governance side, we do make a very significant socioeconomic contribution in our host countries. So, for example, nearly $450 million in 2021. We're also continuing to building trust with our stakeholders, and that's through equality and transparency, which means that really this is about living our value and conducting ourselves in a very ethical and a transparent manner. And we also operate within a very robust corporate framework. So what you can see is that sustainability for us is really deeply embedded across our business. Let me now turn to our operating performance. So you'll remember back in late 2020, we embarked on a systematic operational transformation. And this is bearing fruit. So we've seen strong performance. I talked about safety, but also reliability and costs. So, what we've seen is, we've seen high levels of uptimes, over 97% at both of the FPSOs. And the way we've achieved that is by addressing some long-standing equipment defects. We've sustained all this by putting in place a systematic monitoring and mitigation of equipment risk. We're also focused on improving maintenance and we have an active program really to improve acidic integrity across both the FPSOs. Also, what's kind of very interesting is, we kind of maximize and we optimize performance every day, which helps us to really maximize production potential. And you optimize this across every element going from the reservoir to the surface facilities. In addition to that, we've seen the impact of increased water injection in Jubilee and increased gas processing capacity. So this helped mitigate Jubilee decline, for example, particularly in the first half of last year when we didn't have any new wells in Jubilee, the facilities improvement really helped mitigate decline there. And what we have is defined plans to increase both gas processing capacity and water injection above current levels as we go forward. Now, what we have -- a clear driver for this improved performance has been more direct day-to-day control of operations at the FPSOs. And so, in order to sustain these improvements and also, I think, to support our ambition to really be a top quartile operator, what we've done is taken a decision which is supported by our JV partners. So we take over all the operations and maintenance, the O&M activities on the Jubilee field from MODEC. So when their contract expires later in the month, let's say, later in the year, and we intend to take that over. And I think what that will allow us to do is sustain the -- not just the improvement in reliability, but also allow us to further drive operating costs. The other thing I wanted to highlight on this slide was that the drilling performance. So, you know we started drilling in April. We've drilled 4 wells and workover that was completed successfully. And all of this was really ahead of plans. And the production from new wells in Jubilee obviously was a key factor in driving the production growth from 70,000 barrels a day to 90,000 at the end of the year. Talking a little bit more about the operational turnaround. So where in addition to the liability and the improved performance, the other side of the equation is also about costs. So to give you a sense between 2019 and 2021, on a gross basis, we achieved about $150 million reduction in operating costs across both the FPSOs. And so how do we do this? A big driver for this, one was, the elimination -- so we had shuttle tanker operations at Jubilee. So we commissioned the OOSYS line, so which eliminated shuttle tanking. So that was a big saving. We also have gone through and done a systematic optimization of subsea construction vessel utilization. There has been a lot of focus on optimizing logistic resources and things like onshore overhead costs. And as I said earlier, once we implement the Jubilee O&M transformation, that should be a further catalyst for a reduction in OpEx. Now, drilling is important. -- drilling, just to give you a sense, is about 70% of our planned spend over the next 3 to 4 years. So that's been a big focus for optimization. So if you remember last year at results, we talked about how in the previous campaign, so that was an 18 to 20 campaign, we had an average well cost of about $75 million. And we talked about AFEs of about $60 million. And this was we're looking at the design basis of the wells, looking at our contracting strategy and looking at how we were really optimizing -- minimizing, if you will, non-productive tank. What I'm pleased to say is that we've gone beyond that. So if I look at the average well cost for what was drilled last year, we actually achieved about $52 million per well. And that's kind of part of this mindset of continuous improvement. So clearly, the drilling program is at the core of our strategy. I think the other big thing is the validation that we achieved last year of a very fundamental premise of our business plan. Which is what? There's lots of oil underpinning the resources -- underpinning the kind of producing assets. And as we invest in those, we will deliver production. So, I think the validation of that, I think, is really driving the investment plan and really on the back of that success, now we're engaging with our partners to see when we bring in a second rig in 2023. So let me now share some details on our investment plans. So let me start first by reminding you about the large resource base in Ghana. So, both Jubilee and TEN are very large fields. Jubilee has got about 2 billion barrels of oil in place, as you can see, and then TEN has got about 1.5 billion. Now when you look at Jubilee, we've only produced about 17% of that oil in place. So it tracks to our independent reserve auditors. They estimate that we can recover about 35% on a 2P basis. So we've got, roughly on a 2P basis, still half as much to produce. But what's critical, also I draw your attention to this is the 2P plus 2C recovery factor of 47%, that's really to be the goal that we have. So we've got some ways to go in terms of both the opportunity set and the growth potential in Jubilee. So you can see why we're excited about that. The story in TEN actually is quite interesting as well. Now, historically the focus in TEN has been on both the Enyenra and the Ntomme fields. And these account for about half of the STOIIP of the $1.5 billion. So they -- between the 2, the STOIIP is about 750 million barrels. And so far, we've only produced about 100 million of that 750 million. So that's what you see is 14% of the STOIIP -- the developed STOIIP has been recovered, but the number you see is 7% here in the chart, and that's 7% of the total, right? Now TRACS estimate that we can recover another 100 million barrels from this, so targeting off the 750 million, about a 26% recovery or as you can see here, the number is about 13% of the total, right? So now, as we look forward, we've got an infill program in the developed part of TEN. But the main price really is going to be to target the remaining undeveloped 750 million barrels of STOIIP in TEN. And that should really help us deliver the incremental 2C resource that you see here, the 264 million barrels, and help achieve an overall recovery factor of about 31% across all of TEN. So, hopefully with that resource picture in mind, let me now explain the development plans and the growth potential from these fields. So, the core area, developed area of Jubilee, which is where the historic focus has been, is about 1.5 billion barrels. That's a tough story. And the ultimate recovery here is approaching about 40%. And to date, about half of that resource has been produced, so there is a lot of potential here. And that's what is going to come from the existing and the infill wells. But outside of the core area, what you see to the east is the Jubilee South East and the Jubilee North East. And about 500 million barrels of STOIIP is here, which is really only about 10% of the EUR potential of 170 million has been developed, so you can see the big focus as we go forward in this. So, on the next slide, what you see is -- and we've painted a picture for both Jubilee and TEN in terms of what is our capital allocation and the growth plan. So what you see is, we're allocating about $700 million kind of net to Jubilee CapEx. Now that's based on our current equity, so that's not reflecting the pre-emption. So, the 2022 work program is really focused on investing in subsea infrastructure for the Jubilee South East and Jubilee North East projects. And then the major part of the future CapEx is really on drilling. And what this does is, it's a very well defined and a high return investment program. And what that will do is, it will lead to very meaningful production growth. And you can see on the chart on the right that the potential to drive Jubilee to over 100,000 barrels a day of gross production. So you can see why this is a big kind of investment priority for us. So just moving on to TEN, as said, the current developed fields in -- of Enyenra and Ntomme contain about half of the oil in place, about 750 million barrels. Now, Enyenra is different geologically from all the other fields. It's got complex channelized reservoirs and it's got poor connectivity. So what that does is, it translates into lower recovery factor. So we have been in Enyenra, we're targeting about 19% recovery, which you compare to, say, in Ntomme of about 30%. Now, in Ntomme, the reservoirs are more low bids, so we're expecting higher recovery factors. And again, to give you a sense, a typical Enyenra well would probably have an ultimate recovery of about 15 million barrels versus a typical Ntomme well, which is produced -- these are producers of about 24 million barrels. Now, while production decline within both of these has been faster than expected, I'd say, we have a better understanding of both of the fields and their substantial oil still remains, right? So we've got a number of infill opportunities here. But the big price, as I said earlier, is the undeveloped field -- the undeveloped part of TEN. And over the past year, we've done a lot of work with our JV partners to really understand the broader TEN area and there's significant potential. And as a consequence, what we have now is the number of defined projects that target these undeveloped reservoirs. And like I said, the 750 million that's left is the same order of magnitude as what we have developed. And this is really taking us into Tweneboa and Ntomme Far West. And geologically, these are a lot more similar to Ntomme than they are to Enyenra, so really kind of a lot more comfort and confidence. Now also in addition to all this at TEN is, there is a number of prospective resources that you could see in gray kind of in the western part of [indiscernible]. And these have been identified also for appraisal. So how does that translate into capital allocation and growth? So what we see really as a growth roadmap for TEN is that the infill opportunities they will help sustain production, but the growth in TEN is going to be really driven by the investment in the defined projects. And we're, of course, starting to target these new areas this year. We've highlighted the 2 strategic development wells that are planned. This is in the Ntomme riser base area and the investment in the associated subsea infrastructure that will allow us to bring these on stream from next year. I think the current capital allocation is about $550 million net to Tullow and we can see this driving growth, we can see kind of a pathway to get to kind of 50,000 barrels a day on TEN. Now, I think what we are doing literally just now is that we have kicked off a joint project with our JV partner. So that will help us align and optimize this development, which could further enhance the value at TEN. And I think what I would say to you is that, look, we have a deep understanding of the resource across both, we've defined a number of opportunities. We're giving you a kind of a sense of what the capital required is. The timing of the capital allocation, I think, will certainly develop -- will impact the pace of how we achieve these growth targets that we spend money faster, we'll get there faster, we spend slower. Let me now kind of switch gears and I'll share it with you how we're applying that same kind of relentless focus on value to our non-op assets in Gabon and CDI. So -- and I think that you'll hear me talk a lot about is a lot of collaboration with our JV partners. So, same thing here. We've got a well-defined set of projects. We've got a well-defined portfolio prospective resources that's been driven by our focus on this infrastructure led exploration and last year, we had success at both Simba and Wamba that really kind of highlights to me the regeneration potential in these assets, and when you look at CapEx spend in the non-op, we're looking at about a $250 million net CapEx over 2025 and that we believe is sufficient to keep production stable at current levels. So hopefully, I think through this kind of discussion, you see, we've got a well-defined opportunity set across producing assets that's going to drive visible growth and it delivers value. But that's not just the entire story because we have some visible, very interesting catalysts that could drive very material value. So let me talk about those. So the 2 big ones to talk about this year is the gas in Ghana and Kenya. So the gas -- we really have associated gas from Jubilee. So that's gas that's dissolved in oil, it comes free when you bring it to surface. So that's -- and there is non-associated gas from TEN. And both of these, they have the potential to be a value driver, not just for us but also to deliver very material value for Ghana. So going back at the beginning of the development, 2009, we pledged to deliver 200 bcf of what is basically very rich wet gas, associated gas from the Jubilee and that's too free of charge to the Government of Ghana. And we'll complete the delivery of that what we call the foundation gas by the year-end. And this has delivered about 2 billion barrels, I think over $2 billion of value to the nation. And to give you a sense, again, the gas from the Jubilee field that fuels about 30% of the thermal power generation in Ghana and the continued offtake of this associated gas, is obviously not only supports oil production but also the increasing power generation in Ghana and the production of LPG really is a critical driver for energy security within the domestic market of Ghana. So now we are in discussions with the government to finalize the post foundation gas sales agreement. So that would deliver about 500 bcf. So that's 2.5 times what was delivered previously. In oil equivalent terms, our net share will be about 6,000 barrels of oil one equivalent to our Group production. So there is very good alignment with the government on the offtake volumes and now, what we're trying to do is resolve the price. Now, separately, TEN has got undeveloped gas potential and with the existing infrastructure in place of the gas pipeline, it's quite a commercially advantaged resource. And with such substantial volumes in place, we believe this resource has the potential to drive an industrial transformation in Ghana and provide energy security, particularly at the kind of energy conditions that we see, and there's a lot of focus on this as well in terms of trying to resolve the going forward with the government. Now in Kenya, what's interesting is we have kind of 2 pathways, right. So there is the approval of the field development plan. So we submitted an FDP to the government back in December, and we're in discussions with them to get that approved and in addition to that, we have a dialog with potential strategic partners to come in and as ed fund into the project. And really the idea is that these 2 kind of need to converge at some point because once you have the field development plan approved, a necessary condition to get to FID is the induction of a strategic partner. So the idea is how do we kind of bring all of these things together over the kind of coming period so that we have a wider project. I think we're excited about the project itself and now it's a question of how we manage to solve these. The other catalyst of value that I want to talk about is our exploration efforts. Now in the core area, so remember we reconfigured our exploration efforts to focus predominantly in our core assets in West Africa and the idea there is that we leverage that tremendous geoscience expertise to mature near-field infrastructure-led opportunities, we really maximize value around our producing assets. So you saw this in Gabon where we have a number of prospects that deliver both near-term value, but also production. And the Simba was a good example, because I think I've talked about this before. We accelerated the Simba-3 well into 2021 that was completed in September. You had success, you kind of hook it up and then it drives production growth from Simba. Simba today is producing 40% more than -- year-on-year growth is 40%. So that's a direct consequence of this kind of exploration -- near-field exploration strategy. The other area we're going to start to focus on and hopefully talk more about as we go forward is Cote d'Ivoire where we have the block CI-524. We own 90% of that. What's interesting with this is, it's a continuation of these -- the proven kind of cretaceous turbidite plays that are producing adjacent in TEN and Jubilee. And we've mapped prospects which are kind of very close to the 10 FPSO, we've got deep understanding of this play and that proximity obviously would drive both cost and operational synergies even in the exploration phase. And then again, you'll start to hear us talk more about this as we go forward, but we're really in Ghana leveraging that same expertise, a seismic reprocessing, the deep geoscience talent to really improve our understanding of the subsurface, both around Jubilee and TEN to help unlock additional resource. And the last but not the least really is the focus that we have in really the team have done a tremendous job in understanding the prospectivity in Guyana. We have the Beebei-Potaro well, which is going to be driven by Repsol. This is in the Kanuku Block in Guyana and that's targeting a Cretaceous light oil play in the Guyana-Suriname basin. So that will be drilled sometime over the summer and again, that's one, I would say kind of watch the space. So just bringing all this together, so I've been at Tullow now for 20 months. It feels -- to be honest, it feels like a lifetime. But it's been an interesting time. I think it's fair to say we've managed to transform the business and to really position it for growth and value creation. How we have done that I think it is quite basic, I think we've done it by embedding financial discipline and operational excellence. So, when you look at that the investment story is quite simple. We've got a very deep portfolio and a rich portfolio of high-return opportunities that underpins our producing assets. Les has talked about it, I've talked about it. I think this will drive the visible growth and hopefully we've given you the building blocks and the framework for that. I think the focus that we have on costs and operating performance that will continue to drive the very high EBITDAX and operating cash flow margins, right. The higher oil prices, they will help accelerate the deleveraging. Les talked about that, he showed you a pathway around that and also I think we have unhedged production and the addition of the pre-emption barrels, I think we have exposure to oil price upside beyond the hedging stuff. And I think what's key is to reflect that the transformation in 2021 was really driven by the hard work of the entire Tullow team, but we didn't do this ourselves. So we have very good support from both governments, from our communities, there is a lot of engagement with our JV partners, our contractors and suppliers. And of course, all our -- all our investors. So we appreciate your support. And I think we look forward -- we look forward to another kind of delivery this year. But, like I said, I will not complete this without a big, big thanks to Les. He has been a true partner and a tremendous driver of this transformation. And this is sadly his last results call. So I wish him well and -- but I can't thank him enough for his tremendous contribution. So with that, happy to answer questions.

[Operator Instructions] The first question come from the line of Alex Smith from Investec.

A couple of questions from me please. First is on the hedge book and more importantly on the exposure of the [indiscernible] say, in 2022, you are now guiding to 40% access to the upside and [ 75% ] for protected. Is this [Technical Difficulty] the same beyond 2022? And so when you mentioned [Technical Difficulty]. And then second one, on your point [Technical Difficulty]. And then technically on the second rig decision, can you confirm the time it is expected, by year-end and the earliest that we could expect downstream?

So, I'll take the second one, Alex. So we're working pretty closely with our partners and I think we need to take a decision on that sometime, I would say kind of around the middle of the year. Because if you want to get in the rig going in, say, the first half of '23. So, there is a -- there is an alignment sort of discussion with the partners on the timing of that, but let me hand over to Les and he can give you more color on the hedge book.

I put my headphones in. So, I did miss the second question, but on the first, maybe Alex you can chime in but basically we laid out the $78 per barrel is a weighted average. So it's not a point number and if you look at the hedge book for this year, it's from the 60s. We've got hedges in the 60s up to the high 90s. So you could actually see that's why we really have the exposure that we do, which obviously starts decline as you get to much higher prices. And then if you look out in time as part of the program that we put in, committed to as part of the refinancing that was around 40 million or so barrels over that sort of 20, so the May '21 through May 2024, which over the '25 period that laid out in the numbers is actually about 30% of our production in round numbers. And of lot that 40 million or so barrels, we've already produced just under 12 million barrels. So some of is already unwinding. So, we've got -- basically we've got distribution which gives us access to the upside, it is not single point number. Now, I didn't hear your second question, apologies.

I think the other one, and that was the pre-emption barrels [Technical Difficulty].

Yes, the question was that, are you required to hedge the pre-emption volumes going forward and under the debt structure and then just a follow-up, you kind of mentioned that on the presentation 15% volume inputs and 60% and call it, is that split the same going forward beyond 2022?

No. So the answer to your first question was no. So that's why we said it was roughly 40%, it goes up to 45% once we have the pre-emption is complete. And then if you look to the puts, what happened was, if you go back to which we don't have any more but the RBL facility we had certain requirements, which is what we been hedging. What we did was to meet the test that was part of the RBL facility back then, but at this time last year we put in a number of straight puts. But going forward, really our program as we end up of collars with no straight puts.

All right. So those essentially rolled off from the RBL, now you are more exposed than previously announced to simply put it.

It gets back to the 75-25 as good downside protection and then it is back to having no puts going forward, that's correct.

The next question comes from the line of James Thompson.

James Thompson from JPMorgan. Well, the CapEx guide is clearly higher, you're accelerating as you say, into this kind of more buoyant market. I would say that for most probably the 2025 production numbers for Jubilee and TEN are also decently higher than the market is thinking. So I wonder if you could just help us understand within the context of what you presented kind of what percentage of the 200 million barrels or so of 2C Ghana oil resources are included or you're looking to kind of capture here to deliver that plan and then also just to confirm on that, the numbers you're talking about in terms of production for Jubilee and TEN to exclude the incremental gas that you've presented there?

Yes. So I think the -- the short answer to your second question is yes. It's a kind of oil kind of focus on the production. So I think if you look at the Jubilee growth in that slide 21, all of the components of that really infill the Jubilee Southeast, Jubilee Northeast, those are all kind of defined projects and those are largely out of the 2P reserves, okay. And then I think what you see similarly on TEN, what you'll see is the infill and a big chunk of that defined projects, again if you look at the distribution of the TEN sort of resource is I would say that a big chunk of the near-term growth that you see is really coming from the 2P resource and then what we have is the defined projects, part of that is 2P and part of that is 2C, but the way tracks define the 2P is that anything that's kind of part of our investment portfolio relatively near term that automatically gets into the 2P.

It's really a relatively small amount of your 2C basically. So in theory, you can extend that 2025 view.

Yes, because it's -- and again I think what will happen is that we're working with, particularly with Kosmos and GNPC quite a lot to get alignment on this because if we accelerate further, I think that -- still, I think that we have room to accelerate the TEN CapEx further into the '25 timeframe, which will change the kind of the -- how much to 2P resource we have because then you start to move to 2C into 2P, or we may slow it down because oil prices go back to $50 or something like that, right? So what I wanted to do in the chart is to give you the building blocks of what drives resource and I think the confidence you need to have is that there is a tremendous resource base to well defined projects, and that will drive the production growth and the timing of that will depend on how we -- how fast or how slow we do the CapEx.

Okay, okay. So, I mean in terms of thinking about the progression from '21 through '25 for both, there is sort of held back-end loaded on CapEx and production or is that the wrong way to think about it?

That's the wrong way to think about it. I think it's fairly kind of -- we have I think in what Les talked about is about one point -- I mean he's given the breakdown, right? So, I'm just going to pull that up. So it's $1.6 billion of total CapEx and I think it's fairly evenly spread, at least the way we have it right now.

And then just lastly from me in terms of the gas opportunity in Ghana, which I don't think we're looking at that closely just yet. It seems to me like the bottleneck is actually at Turbot plant. Is there a plan to expand that? I mean is there any sense in kind of pushing forward with both TEN and Jubilee if that is kind of bottlenecking at 130 million scuffs day? And is there any kind of material CapEx to deliver the gas assuming you do get some commercial agreements?

So, you're absolutely right. That Turbot is 130 million scuffs. So it's great. I think as long as we get reliable performance there, it's great for the continuation of the associated gas. We have a vision for going up to about 240 million scuffs today and that's looking at both associated and non-associated gas that will require an increase in processing capacity. That's a discussion that we're having right now with GNPC, GNGC and the Ministry to say the timing of that and the -- and who does it. I mean we've said to the government, we're pretty happy to help if that's needed. So I think we certainly have the capacity to do that. I think there is a norm work the government is doing to see how do we -- how do they increase the capacity. I think in terms of, from our side, the incremental CapEx is very minimal. It's about drilling some non-associated gas well. So that's TNAG and stuff like that. So we've identified the wells, we can get going on that pretty quickly. A gas pipeline is already there. We're upgrading the processing facilities. So that's all pretty straightforward.

The next question comes from the line of Rachel Fletcher from Morgan Stanley.

And I was just wondering if there was any update on the progress of the Kosmos pre-emption and in the presentation, you've mentioned an extra 5,000 barrels per day and net to Tullow following completion, how much will this -- how will this impact CapEx going forward?

So, Rachel, I'll hand you over to Les on the first one and then one of us can take the CapEx question as well.

Okay. So very Good morning, Rachel. So we gave a short update in the statement. Basically, we've got a great form and all the documents between ourselves and Kosmos and jointly, we've applied to the government for consent and the conversations are happening as we speak and constructively, the 5,000 barrels a day that we talk about is annualized. So obviously, if you complete at the end of 1Q, you can renew a quarter for that. So that's easy to do the arithmetic. I don't have just to hand the CapEx number.

I think it's -- while you were speaking, I was doing the math. So it's about $100 million incremental CapEx, Rachel. But it's -- these assets are cash generative, so we end up, I think Les talked about free cash flow about $1 billion, I think with this, we end up -- but if you exclude the purchase price, we end up with about $1.2 billion. I think the assets with net cash contribute about $200 million, $200 million-plus.

That's right. And I gave that number of higher prices as well, indeed.

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

First question I have is on the Kenya potential strategic partner entry as a requirement for FDP approval. Is that something all the partners are working together as one or doing individually?

So, Mark, just to be clear, it's -- what we've said is, the FDP approval comes from the government, right, but we've said to get to FID where do you need to kind of have all the money and stuff, the strategic partner is essential for that, just to be clear on that. And, yes, all 3 of us are working together.

And one of the partners has mentioned the possible timing towards that of 2Q22, would you be able to speak to that?

I think that I wouldn't be able to comment specifically, but I think that what I would say to you, as I said earlier that we trying to converge all of these things and I think the -- and that's certainly kind of we're all working super hard. I think the wildcard to me is we're in the midst of kind of coming in or coming into the midst of Kenya election. So that impacts timing, but I can assure you, this is top of mind for us.

Got it, okay. And then on the timing of the Ghana preemption completion, is that dependent on any of your other commercial arrangements such as the gas sales agreement discussions and also the tax, I don't want say dispute, but discussions is something that's also been flagged in the last year?

No, I think we've been super impressed actually by just the proactivity from the government. I think they are on top of it. I think there is a very clear path forward. And all the terms have already been agreed. So we're just stepping into the deal that Kosmos had worked hard to achieve, so in the same terms.

One thing I had noted from the presentation today is, the amount of drilling to come in future years, this seems a lot of activity. You mentioned wells for the gas sales agreement if you get that Jubilee Southeast and then infill anyway. How is the rig market looking and you mentioned the rig for '23, would that have to be announced by the middle of this year, let's say, interim results in order to happen. And as I say, what are you seeing on rig rates and timing?

So I think as I said earlier, I think about 70% of future CapEx is on drilling. So you're right, I mean, lot of wells to be drilled and lot of focus on doing it well. I mean, hopefully, you've seen the evidence of that. I think we're -- as I said earlier, we're working with our partners to get alignment and timing of the second rig. I think we see enough opportunity. So there is no shortage of opportunity I think in Ghana. So, I think certainly there is a rationale to bring a second rig. Timing is something that we need to work through the partners. We'd like to see it in working in '23. Rig rates have gone up, for sure. So that makes it more challenging. I think the thing -- I would say to you that it's -- that day rates are an important but a part of the overall spread cost. I think there are other things. There is clear upward pressure, but I think part of our job is to say, how do we mitigate that looking at well design, looking at different contracting strategy. So that's all pretty much in [ last year-to-date ], but clearly it's a different market from when we secured the Maersk, which was at the end of 2020.

And if you could give me one last question. I am intrigued about the exit from Namibia. I understand completely ILX exploration and also the focus on Ghana production. But given what you've seen in Guyana where the deepwater really brought through these massive discoveries and your block in them in the Orange Basin of Namibia seem to be in the deeper water, I'm just wondering about that exit there. Was there a large well commitment that you didn't want to commit to?

So I think it was -- no. And a lot of people including my Board has asked me that. So, firstly, I think we are delighted for Namibia. I think the successes have kind of been long time coming, but it's great to see that. I think we had a cady commitment and we look at all of these things in a kind of risk reward way. And I would say while kind of it's okay you are in the same country, but it's a very different risk reward in our play. And I've been back to our exploration team and the view is that notwithstanding the success of Venus, the risk reward in what used to be our blocks remains largely unchanged. So I think the simple answer is no regrets on that.

The next question comes from line of Matt Smith from Bank of America.

So just wanted to ask a question around capital allocation, really. And if you think back to the sort of new Tullow plan that you laid out course around focusing your capital towards your producing assets and so the cash flows and the deleveraging profile that we see is still being sort of presented in that fashion. And I suppose the main delta could be as Kenya progresses and if you were to retain a material stake, that would bring CapEx before it brings more longer-dated cash flows. So I'm just trying to work out sort of how you think about that in terms of your financial planning and then also, secondly, I suppose whether your appetite to retain a more material stake in that Kenyan development has increased over time because, clearly, the company and the oil price is in a very different position than it was 2 years ago?

Okay. Now, look, I'm glad you asked the question. And I would say that, firstly, hopefully you guys get a sense that we are not opportunity-constrained. And we've been very deliberate in terms of how we see scout the capital spend. So this year, for example, we said, look, we want it to be cash flow neutral at 65 and that's how we shape the capital spend. And overall, I think one of your colleagues asked earlier, we have accelerated the spending to the '22, '25 period, which is driving faster growth in production. So, not opportunity constraints. Anything that we put in the hopper has to compete very favorably with the existing opportunities and I can show you that's a very, very high bar, which is again fundamental to and that's candidly not changed because the decision to seek a formal partner on Kenya was essentially around that, that we -- because you have a large portfolio of high return, short cycle capital opportunities, you're not going to allocate a lot of capital to a long cycle opportunity. So I think that -- so, the commitment to farm it down and a material stake remains unchanged. And I think our intent is again to seek a formal partner that would mitigate a substantial amount of the capital exposure. We like the project a lot. I think we worked hard to make it a very attractive project. And I think if you do it that way, then whatever capital we have, then the returns on that become quite high and then it starts to compete for capital allocation. But the overall approach hasn't changed and I think the reality that we're living with, with the high return, which gets better the higher the oil prices and that's very much the case.

There are no further questions. And I would like to hand the conference over to our speakers for closing remarks.

Okay. Well, look, again, thank you very much for participation and apologies for the late start. Hopefully this was useful. As always, happy -- my team and I, we're all happy to answer your questions as you're trying to get your head around these results. And I just want to again conclude with a big, big thanks to Les. And do join me in wishing him well on his next journey. So, thank you very much.