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Edited Transcript of TLW.L earnings conference call or presentation 24-Jul-19 8:00am GMT

Half Year 2019 Tullow Oil PLC Earnings Call

London Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Tullow Oil PLC earnings conference call or presentation Wednesday, July 24, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Angus Murray McCoss

Tullow Oil plc - Exploration Director & Executive Director

* Chris Perry

Tullow Oil plc - Head of IR and VP of IR & Communications

* Les Wood

Tullow Oil plc - CFO & Executive Director

* Paul McDade

Tullow Oil plc - CEO & Executive Director

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Conference Call Participants

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* Al Stanton

RBC Capital Markets, LLC, Research Division - Analyst

* Alwyn Thomas

Exane BNP Paribas, Research Division - Analyst of Oil and Gas

* Amy Wong

UBS Investment Bank, Research Division - Head of European Oil Services, Executive Director & Analyst

* Christopher Courtenay Wheaton

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Colin Saville Smith

Panmure Gordon (UK) Limited, Research Division - Oil and Gas Analyst

* David Matthew Round

BMO Capital Markets Equity Research - Oil and Gas Research Analyst

* Duncan Gregor Milligan

Goldman Sachs Group Inc., Research Division - Equity Analyst

* James Carmichael

Macquarie Research - Senior Analyst

* James Thompson

JP Morgan Chase & Co, Research Division - Analyst

* James William Hosie

Barclays Bank PLC, Research Division - Research Analyst

* Mark Wilson

Jefferies LLC, Research Division - Oil and Gas Equity Analyst

* Michael J Alsford

Citigroup Inc, Research Division - Director

* Sasikanth Chilukuru

Morgan Stanley, Research Division - Research Associate

* Stephane Guy Patrick Foucaud

GMP Securities L.P., Research Division - MD, Institutional Research

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Presentation

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Paul McDade, Tullow Oil plc - CEO & Executive Director [1]

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Good morning, everyone. We'll get started a few minutes after 9:00. Thanks very much for coming along in this hot steamy morning. At least it's nice and cool in here, and like I say it.

Before we begin the presentation, I just wanted to acknowledge a key member of the team, who's contributed so much over the years. Chris Perry, who's sitting at the back of the room, who will be holding the microphone for one last time, trying to control your questioning. He'll be doing that for the last time today. So Chris has been running IR for 10 years now. Can you believe it? He's moving on to another senior role within the group. I think Chris, I think we'd all recognize, he's done a great job over the years and kind of shaping our approach to IR, which he inherited way back from Tom Hickey early back then, and really supporting the executive team enormously, so that we can go there and tell our story actually. And in a way that makes sense to kind of all of our stakeholders, you in the room, our investors and we've got many other stakeholders that are listening to what we say. So I know from all the feedback that certainly I've had over the years, Chris is very much been appreciated by the analyst community and by our investor community. And I'd like to kind of take this opportunity to thank Chris for all these efforts over the years and all he's done for Tullow, and wish him well in his next role, which I think will be equally exciting.

Julia Ross, who many of you will probably know more from the debt side of the business rather than from the investment side, will have -- Julia's been in many senior finance roles in the company. She will have oversight of IR going forward; and Nicola Rogers, who many of you -- you'll all know Nicola, will now step in and take over as Head of Investor Relations. So thanks very much, Chris. And Nicola is, I think, not in the row. He's up here somewhere. Good luck to Nicola in her new role.

So with that, moving on to the [order of day's] kind of first half 2019. We've made good progress over the first half of the year, but we have had to address a few challenges. I think importantly, the financials have remained in good shape. Strong free cash flow generation for the first half and projected through for the full year, and that's allowed us to continue to invest in the growth of the company, continue to pay down debt and pay out a dividend as per our new policy. In fact, I think about the assets. In Kenya, we've made a big step forward with the signing of the commercial Heads of Terms. That's helped us really frame the project with the government.

I was down there just over the last month and having dialogue at senior levels of government, and we're all agreed that we can focus on a second half 2020 FID, and we've got the full support of government and now with the HOTs in place, we've got the broad commercial framework that's required, so we can now work with JV Partners, government and banks and other stakeholders, contractors to move the project forward. So expect a lot of progress over the next 12 to 18 months in Kenya.

We obviously kicked off the program in Guyana, long-awaited program and 3-well program in Guyana. Just in case you're looking for clues, we're not at the exciting part of the reservoir. So ignore our body language with respect to Guyana, but we will be soon. And we expect working on track for a result coming out around middle of August. It's an interesting well, but I would remind everyone, it's a campaign. It's nice to be in there drilling 3 wells rather than any 1 individual well. Obviously, we're going to Joe and then on to the Carapa well and the Kanuku block. So interesting campaign. We'll see where it leads us to. We're quite excited about the potential outcomes there.

I think also what's good and Angus will talk a little bit today is, kind of we're in a -- moving back to kind of conveyor belt of exploration opportunities in frontier areas because we got Peru actually coming up early in 2020. And then Angus will talk about some of the ideas we've got for the rest of the 2020 program. And certainly, we'll be following on in Guyana as well within 2020. So it feels like we're moving back to a place where we've got a continuous flow of interesting exploration opportunities rather than just one-offs.

The -- moving over to production. West African JV portfolio continues to outperform. So that's going well, and the return to investment in that area has delivered production growth there and is sustaining production growth across Côte d’Ivoire, Gabon, particularly and EG.

Then in Ghana, after a bit of a bumpy start at the beginning of the year, Jubilee continues to perform well. We're actually on a well that will contribute to the second half right now, but the reliability of the fuel continues to improve in terms of the facilities, and it remains pretty much on track. But as you'll have noted in our update this morning, we've had to revise guidance down that's really because of a well we've been on in Enyenra called Enyenra-14. Complex well, Angus will talk a little bit more about the complex well. We basically had to suspend the completion of that due to some mechanical problems. The challenge with these wells, as you saw in Enyenra-10, is that they are challenging to get down and done, but when they are done, they make a big contribution to the production in the field. Obviously, the flip side is, when we've had to suspend it, we've had to take out a major contribution for now from the field. And we've taken a prudent approach, we've just decided, let's just take out the whole contribution for the Enyenra-14 from the second half forecast, and that way we're not under any pressure to rush into trying to recomplete the well. We'll stand back. We'll think about it, use the rig elsewhere, and come back, but Angus will talk a little bit more about that.

Again, what I would mention is, across TEN and Jubilee, again Angus will highlight, there's a long way to go in these fields in terms of development, infill drilling, further development of potential reserves and resources in our own field, so lots of running room across both Jubilee and TEN. So I guess lower production does mean lower cash flow, and Les will get into the financials in a few moments. But the underlying cash flow of the business remains robust. We started in '17 back to free -- strong free cash flow. Again, this year -- sorry, '18, and then, again, we're projecting strong cash flow. And we remain focused on capital discipline and cost discipline. You see from our OpEx per barrel despite revision down on production, we're still on track for our OpEx per barrel targets. And that's just about us paying a lot of attention to costs within the business, whether they're G&A or operating costs.

Then going on to Uganda. Uganda continues to frustrate somewhat. We haven't closed the deal, obviously, as we've said this morning. The way I think of it, all parties want to get the deal closed. There is a desire by all parties to get the deal closed, but we can't quite get over the line. We can't get the compromises made to get over the line. We continue to work it. I was down there about 3 weeks ago. And definitely, the government, they want to go into FID, they want to get the deal closed. They're just about kind of rally in everyone together and getting everyone around the table and pushing over. So we continue to push our efforts there, but as we said, the government will determine, we will come down from 33% to 11%. We will not FID this project at 30%, so we're really keen to get the deal done and remain off the critical path because the rest of the project is moving ahead well, and it is a world-class project. So it would be kind of nice to see it contribute to the Ugandan economy when it comes on stream.

So despite the short-term challenges, the business remains in good financial health, and we are investing a lot in the growth of the company for the future.

Before passing on to Les and Angus, I just wanted to kind of stand back a little bit and talk very briefly about the vision we laid out at the Capital Markets Day and continue to talk about based on our kind of 4 pillars of Africa, oil, sustainability and progressive. And I think important to say that in a kind of rapidly changing world and a world of energy transition, a lot more discussion around climate, we still see very much a place for a company like Tullow that's focused on developing Africa's oil resources. And we are genuinely committed to doing that in a sustainable and progressive way. Demand for oil, in our view, is going to be around for many decades, and we believe within those decades, we can continue to create value for our shareholders in this period of change. However, to be successful, I think we do need to focus on not just developing the oil, but doing it in a sustainable and responsible manner, particularly around emissions and environmental impact.

We believe that developing nations, such as Uganda or Kenya or Ghana, have the right to benefit economically and socially from their natural resources as we and many developed economies have, so they deserve their turn to grow their economies and social development. And we think Tullow, in Africa, with our relationship with those governments and the experience we have, can be a great partner with them to do that in a way that is both responsible and sustainable.

We've seen this impact all around us. Even the FTSE recently renaming, classifying us into a nonrenewable, renewable, and now we're nonrenewable. So that's important. I mean it's significant for that change to have occurred because I think what it is, it's point to note, we need to show up in the right way, and it's something that we're very focused on.

ESG in its broadest sense: environmental, social and governance, so it's not just climate, it's a very broad area, a broad spectrum. And it's been core to Tullow and it's certainly core to me and taken over with Tullow is an important part of, as we set out in our vision. And we -- by refreshing our view of what we stand for in terms of ESG was important to us because I think it will be important for our license to operate in the countries, and also with respect to our relationship with investors and allowing them to continue to invest in Tullow for many years to come. So as we reset our vision, we were very clear what we meant by sustainability.

There was 4 key areas, which are behind me on the screen: Environmental stewardship was one key element of sustainability where really we want to maximize the positive environmental impacts that we have and minimize the negative environmental impacts of our business in the areas in which we work. And really, we're putting a much increased focus on our carbon footprint and our emissions and reviewing what we can -- what more can we do there to remove emissions, reduce emissions and looking at offsetting those emissions.

But we've got many examples of where we are already working on environmental stewardship. We were one of the first companies, I think Shell were ahead of us, but they were the only ones, where we said we're going to be no-go in world heritage sites. I think we still remain as the only other -- are the only independent state, that's important because it sends a signal, a broad ESG signal. And again, we're applying some of the techniques in upcoming seismic operations within Côte d’Ivoire, which are in populated areas about an environmental footprint. We got many techniques we learnt in East Africa that we're continuing to develop, which means the environmental impact of that seismic is much reduced today from where it was before of how we go about that part of our business.

If we look at responsible operations, core to what we do, we've always had a very strong track record of EHS performance. We've moved on to this concept of perfect EHS days. So what does that mean? It means that there's no high potential near misses, no recordable injuries, no environmental harm to sea or land, both offshore and onshore. And we're on track to have another increase in improvement as we look at 2019 versus 2018. I think another area for us internally is health. And again, we got big focus on kind of health and well-being of our employees. So that's an area we're focused on.

Then, equality and transparency. Mainly in civil society, hold Tullow up as a good example of how to go about your business from particularly a transparency perspective. Actually, we were one of the company -- one of the few oil companies who were asked to speak. I spoke at the EITI's Global Conference on transparency. We've been a great supporter of EITI, and we push for transparency in the countries in which we work. Only one of the handful of extractives to be invited. And then on diversity, we have set out targets for kind of a quality on gender balance in the company. And to -- for us in terms of ethnic diversity is Africa, that's important, given where our business is at the moment. And we were striving and continue to strive to have a majority of African employees throughout the company as we look forward to the coming decade.

And we've been leading from the top. If you look at our current Board, we've got a very strong gender and ethnic diversity at the Board, and we're one of, I think a few of the FTSE 250 that actually has a female Chair. So I think we're leading this, kind of, attack on diversity from the top of the company. And then shared prosperity. I think all of you are aware that it has been a big agenda item for over a decade for Tullow, where we work with our governments to leverage their resources, to create jobs, to create economic development and business opportunities in the countries in which we work. And I think we're extending that to our infrastructure. We donated 200 Bcf of gas to Ghana. Right now in Ghana, that free gas basically supplies about 25% of the electricity within Ghana and from the power stations.

And then in Turkana, we talked a little bit about Kenya. In Turkana, we are going to be bringing significant amounts, we bring water in to develop the [old food]. We're going to use our infrastructure to actually bring significant amounts of water into Turkana for use by the local population in one of the most arid areas in Kenya. So these are areas that we continue to develop, but I actually think for -- from an external perspective for our investors and for us as a company to continue to grow and add value, we need to put them absolutely at the forefront, which is why we've included them today.

So with that, I'll hand over to Les, who will go back to the 2019 results and get into some detail.

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Les Wood, Tullow Oil plc - CFO & Executive Director [2]

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Thanks, Paul. Good morning, everyone. It's a pleasure, as always, to be here to deliver an update on the numbers and the performance of the business. And as you heard from Paul in the outset, we do have much to be certainly pleasing around the financial performance of the business in the first half of the year, and I'll cover those numbers with you shortly. Firstly, I would like to also add to the comments that Paul made at the beginning about Chris, who's been a key part of my team since I joined Tullow and took up this role. And the good news for me at least is that I also get to work with Chris going forward, so Chris will be a very important part of my corporate business as we move forward. I also want to wish Julia and Nicola success in their new positions.

And then, now to the numbers. This is a slide, I think you're all very familiar with, I'm pleased to report. Of course, we've had a good set of financials for the first half, as you can see from the various metrics on the slide. We've also got very solid outlook for the full year, as we continue to deliver a strong underlying free cash flow for the year. This has allowed us to continue a reduction in debt, which is now less than $3 billion, and our gearing is now at 1.8x, well within our stated range. I'm also pleased to say that our profit after tax has risen year-on-year, and at the same time, we are appropriately investing in a business, and at the same time paying a dividend in line with our policy.

I believe the numbers today that we are showing demonstrate the robustness of our business and underscore the progress that we continue to make. We're able to absorb the slightly lower production than forecast that Paul referred to and we're also robust to fluctuating oil prices and still generating, like I said, strong underlying free cash flow. I think this is clear evidence of the resilience of our business and the financial discipline that we've embedded over the last few years. As you can see on the numbers, we've got a unit OpEx for the first half of around $9 per barrel. Of course, this is a good number, but some of that is primarily driven by phasing of both routine and nonroutine activity in the second half, and we do expect a full year outcome to be around about $10 per barrel, which is in line with our annual budget.

You'll also notice that free cash flow came in above the around $100 million or so that we said, and we guided in June. Some of that was really just driven by working capital movements at the period end, resulting in higher cash balance primarily in the JV-operated accounts, which resulted in a positive number. As I've said before, we do expect and it's not unusual, I think we've seen it in the last 2 period ends, working capital movements, and they can have impacts on our final results. So that's not unusual. I'll come on to talk a bit more about free cash flow shortly.

The other thing that you can see mentioned on the slide and in our results, the insurance period associated with our Corporate Business Interruption claim actually completed in May of this year, 3 years after it commenced. Of course, that's been extremely beneficial through the whole period of the TRP project, and we will expect just a final true-up from insurers through the course of the year. And of course, Tullow continues to hold business interruption insurance. All in all, I will say these are the good set of first half results and demonstrate that we continue to make good progress right across the business.

Now I'll say a little bit about our capital investment. We do, as we've set out before, we do continue to invest in our business in the $200 million to $600 million range. Of course, we've seen, over both the last 6 and 12 months, we've seen a fluctuation in oil price. So I think it's crucially important, as Paul intimated earlier, that we maintain that financial discipline, so operating within that range continues to be important. We continue to provide a forecast for the full year of around $570 million, which is in line with our current forecast.

As you know, we're investing more in 2019 than we did in 2018, and in fact, than we did in 2017, which is all supporting the investment and growth in the business. This year is primarily driven by 2 rigs that have been operating in Ghana, certainly for the first half. An exploration program, which is now underway in Guyana, which Angus will refer to shortly. And as you can see on the slide, the areas for investment are quite clear. So we are investing about $250 million in Ghana, which is obviously adding to our production well stock and growing our production there. We're now operating 1 rig in the second half versus 2 in the first half. In our non-op portfolio, you can see the expenditure is a bit second half loaded. That's because some of our infill programs, for example, in Côte d’Ivoire are not going to be underway until later in the year, so program is second half loaded. All of that is contributing to sustaining the production in our non-op portfolio. We're drilling 3 wells in Guyana, as you know, in the second half, which will cost us about $80 million net, but well within the $150 million cap that we set ourselves for the exploration. And of course, we continue to take advantage of the low-cost inflation in the oil services sector, particularly in the rig market.

As you see, we continue to show Uganda grayed out on this chart. This is because we expect it to be covered by closure of our deal with Total and CNOOC. And as you can also see the expenditure year-to-date in Uganda has been quite modest at only $60 million. And if you look at the full year, if you recall, when we started out the beginning of the year, we were forecasting $180 million. At the last update, we reduced that to $130 million, and now we're forecasting $60 million. Really, that's only a reflection of an FID that we've previously been guiding from our operator, Total, that would be the middle of the year moving to the year-end.

Kenya expenditure remains flat as we continue to work towards the new FID date in 2020. And of course, as has also been said, with many important milestones achieved in the first half, so a good progress there. I'll also cover shortly on the capital allocation framework. This provides real clarity on how we think and appropriately invest in our business.

I'll say just a little bit now on free cash flow update. Our underlying free cash flow generation remain strong, albeit it has had -- been adversely impacted by our lower group production forecast for the full year. As I mentioned, the first half did finish stronger than we'd forecast, just earlier in June, driven, as I said, by working capital movements. They're finishing closer to $200 million. Given the revision to the group guidance that has previously been mentioned and the knock-on impact on our lifting schedule, so effectively, 1 lifting for TEN will move from '19 into 2020. We're now expecting that our underlying full year free cash flow to be in the region of about $400 million and broadly similar between the first half and the second half at a projected $65 per barrel oil price.

We're still working hard to complete the Uganda deal, as Paul laid out and that's the green bar that you can see on the right, this in excess of $200 million. We've updated our price sensitivity, now that we've got one half behind us, so $75 million for every $5 movement in the second half. And of course, as I've outlaid earlier, you can still anticipate that we might have a working capital movement at the year-end.

As you can see, these assets continue to generate significant free cash flow year-on-year at current prices including, as we've highlighted with our little blue dots on the diagram, as we've increased our investment in the assets over the last 3 years. So pre-CapEx in all years in excess of $1 billion. So this strong free cash flow base gives us the operational and financial flexibility to invest in growth, drive down debt and gearing, and of course, pay dividends.

Then finally and this is, again, a slide that you'll be familiar with. Just a reminder of how we allocate capital across the business and the priorities and the parameters that we set ourselves. We have 3 priorities: firstly, of course, managing our balance sheet; secondly, investing in our business; and of course, shareholder returns. Taking those just briefly in terms of debt and gearing, of course, the balance sheet remains in good shape. We further reduced our net debt level from where we were at the end of 2018 from 3.1% down to around 2.9%. We continue to focus on reducing that to $2 billion in the near term. And of course, as we've announced in our results today, gearing is now down at 1.8x, with a long-term range of 1 point -- sorry, 1x:2x, and we're aiming, as I've said previously to be at the bottom of that range. And we continue to have strong liquidity with headroom of around $1 billion.

Then in terms of investing in our business, I covered that a little bit earlier. We will continue to apply strict criteria to allocate our capital across the portfolio within a $200 million to $600 million range. And then finally, last but not least, shareholder returns. We announced our new policy at the Capital Markets Day, if you might remember, back in November. We confirmed today an interim dividend of $33 million that we'll pay in October. And following the final 2018 dividend that we announced in February and paid in May, we will have paid for the annual year 2019, $100 million in cash dividends.

So just briefly, in summary from me, 4 things: One is, we're generating a strong -- or we have a strong free cash flow base from our low-cost production assets. We now have a robust balance sheet, with gearing heading lower as well as net debt. And we've got financial discipline right across the group. Our balance sheet gives us the opportunity to grow as opportunities present themselves, and it gives us a greater resilience in an increasingly volatile world. And finally, what I've just covered is, we're now able to pay a sustainable dividend, and it's the best illustration, I think, of the progress that we've made and that we do have the financial discipline within the company, and we're well set up to deliver on our growth potential.

And with that, I'll hand over to Angus.

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Angus Murray McCoss, Tullow Oil plc - Exploration Director & Executive Director [3]

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Good morning, everybody. Thank you, Les. Now for our operations update. Continuous hard work across our oil fields is delivering competitively low breakevens, and a combined production drives our strong free cash flows. Tullow's production base remained solid despite our near-term guidance adjustment. Drilling in Ghana has generally gone very well; however, Enyenra-14, as you've heard, was one of our trickier wells, and unfortunately, its completion had a mechanical problem. So we've suspended it, we've taken the contribution out of the forecast, and to give our engineers time to work out their plans, we've moved the rig to complete at Jubilee producer. You may recall that Enyenra-10 completion had a problem, a different one, which was promptly overcome, and that well went on to produce 15,000 barrels of oil per day. The challenges with Enyenra-10 and Enyenra-14 are disappointing; however, all the other completions, the 7 completions, went very well, 4 in Jubilee, 2 producers and 2 injectors; and 3 in TEN, 2 producers and 1 injector, giving us a very resilient well inventory, and those reserves will get produced.

Now building on our solid West Africa base, we look forward to longer-term production growth from East Africa from the significant resources we've discovered there in Uganda and Kenya. Our progress in Uganda has been frustrating at times. This is a world-class, large-scale project that can double our nonoperated production. Production from Kenya will also add another material step-up with these 2 projects on schedule to add around 50,000 barrels of oil per day from 2023. Tullow's core assets at Jubilee and TEN fields in Ghana, both continue to make very significant production contributions of high-quality, high-margin, light sweet oil. Jubilee has only produced 1/4 of its resources and TEN only 1/10. Beyond infill drilling in the center of these fields, we see numerous economically attractive opportunities to extend production longer term. Particularly in the southern part of Enyenra, the western flank of Ntomme and the eastern flank of Jubilee. Our sustained production outlook in Ghana will ensure shared prosperity for all stakeholders.

We continue to learn from events like the earlier Jubilee compressor outage and the tricky completions at Enyenra, and these will be incorporated into our plants for Ghana's next decade of oil production. We remain confident about the momentum of value creation from Tullow's 2 core assets.

The Central West Africa nonoperated portfolio continues to perform well and is ahead of our initial expectations for the year. Factoring in small license transactions, we're now achieving over 25,000 barrels a day from this portfolio, which is ahead of original guidance. In particular, performance from Gabon is very good with our new fields at Simba and Ruche continuing to perform ahead of expectations. There are also some very interesting bolt-on opportunities near our existing assets and more generally in the region. This is a part of our business where we see both organic and inorganic growth opportunities in a part of the world that we know well.

In Uganda. Clearly, our priority in Uganda is the completion of the farm-down to CNOOC and Total, as Paul mentioned earlier. However, we're making good technical progress at the same time. And as this slide shows, we've completed a number of key technical tasks required for FID, but there are some that remain outstanding around EISAs and some key commercial agreements. However, the operators continue to push to keep the momentum going and target FID at the end of 2019. Overall, the potential of this project remains immense; 230,000 barrels a day of high-quality oil expected on stream 3 years after FID.

Progress in Kenya has been more positive with the signing of commercial Heads of Terms giving the project renewed impetus. The government of Kenya's proactive approach to drive and Project Oil Kenya forward is making a big difference in country. Very simply, the Heads of Terms set the commercial parameters for the project and make sure all parties fully understand the economics within which they are now working. After discussing the remaining milestones with the government, we have a new FID date in the second half of 2020, and we're now feeling more confident that this time line is realistic and achievable. The project team has already achieved a lot, as the top half of this slide shows. Engagements with communities on land and water are going well. The Early Oil Pilot Scheme is now trucking 2,000 barrels of oil per day, and our wells are performing as expected.

We expect our first export from the pilot scheme in Q3. While there's a lot to do over the next 12 to 18 months, as the bottom half of the slide shows, the team is focused and determined to achieve FID in the second half of 2020. Our exploration activity chart shows that our acreage high-grading engine is back in top gear. Our best plays and prospects are built on their impetus from earlier years, whereas campaigns which didn't cut our rigorous $50 tests have been dropped. New ventures, which survive our tough scrutiny, have been added at low cost, giving us a renewed portfolio depth and a new strength in our core plays and core areas. We remain very focused on capital discipline and on our $150 million expected budget, and we will continue to leverage our strong positions and farm-outs for carries as we've recently done in Côte d’Ivoire.

Our current priority campaign is in the Guyana hotspot, and we'll be drilling 3 wells there this year. More on that in my next slide. We also have a very exciting acreage in Peru, Suriname and Côte d’Ivoire as well as new entries in Argentina and Namibia. We continuously evaluate and rank our exploration portfolio as we prepare the best feature program, and we'll guide on that later. What I can say today, however, is that we'll be drilling the Marina 1 well in Peru next year. Petroleum systems offshore Peru, with their abundant natural oil seeps present Tullow with an exciting base and scale opportunity. We consider Peru to be a future hotspot, and others in our industry are beginning to think so too. You know what they say, you can't afford to get into a hotspot after it's a hotspot, so we've made an early move. There are compelling analogies with prolific Californian basins, which have been producing oil for over 140 years, yet in Peru, the industry intensity has been far lower, and so there's much yet to find. Naturally, we're all very encouraged by the potential of this multi-basin portfolio and the 3-year program to potentially deliver new organic growth for Tullow.

And finally, our exploration campaign in Guyana. It's been a decade in the making and we're drilling right now. And as Paul said, you can't read my body language. There's nothing to report there yet. We're very well positioned in this hotspot, and we highly appreciate the government's strong support for its rapidly expanding new oil industry. Our acreage covers the terraced continental slope, up dip of the Liza discoveries, which derisked our Cretaceous turbidite plays, and the recent Hammerhead discovery derisks our tertiary turbidite plays. Should we be successful, the new frontier basin economics in shallow water supports small minimum commercial field sizes with high-value barrels.

In Orinduik, we're drilling 2 operated wells this year at 60% equity. At first, we'll drill the Jethro prospect in a lower tertiary play like at Hammerhead. We're targeting over 100 million barrels, deploying a drillship in 1,350 meters of water at a net cost of $28 million. Success would have material follow-on potential in the Jethro area. We expect to announce the results from Jethro in the first half of August.

Our second well is the Joe well, which follows on directly from Jethro and is being drilled by the Stena Forth too. This is also a 100 million barrel prospect and it will cost around $11 million. It's not quite such a deep well and it will test upper tertiary, and we expect a result from Joe in Q4.

Kanuku is our nonoperated license in Guyana, where we have a 37.5% interest. An exploration well will spud there in September this year, targeting the 200 million barrel Carapa prospect. Carapa 1 tests a cretaceous feeder channel up dip of Liza. It will be drilled using a jack-up in only 70 meters of water, and the net well cost is expected to be about $20 million as a result in Q4.

So after applying our full geophysical and geological capabilities, these high-impact wildcats have a 1 in 4 to 1 in 5 chance of success, which hasn't really changed since I guided that in February. However, what I can say is, we're obviously a bit more excited now that the drilling is actually underway. So let's see.

And with that, I'd like to hand over to Paul for his conclusions.

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Paul McDade, Tullow Oil plc - CEO & Executive Director [4]

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Thanks, Angus. Just quickly to wrap up and get onto Q&A. In terms of second -- looking ahead, second half, I think what I'd say is, financially, the business is in good shape. We've committed to get the company back to delivering free cash flow year after year. We did in it '17, we did it in '18, and we're on track to do it in '19. That is -- means that the balance sheet just continues to strengthen. We're 1.8 now and we'll be in a stronger place by year-end. So the financial base of the company is good. I think as Angus highlighted, our West African portfolio will continue to generate that cash flow. There's much to go after in Ghana, and we're doing a very good job of sustaining the mature area and the rest of West Africa. In East Africa, it's good to get momentum under Kenya and get a target there that is achievable and get us through it in terms of the FID. And in Uganda, we will get that Uganda asset funded and it will move to FID. So we will see contribution from East Africa in years ahead as an important part of the portfolio.

And then if you look at the kind of growth opportunities from exploration, I think after a good number of years of resetting exploration, we're now back to having a conveyor belt of the 3 to 5 high-impact exploration wells per year. So the business is in good shape. We've got good growth opportunities ahead. And we will continue to look to deliver value. And as I said at the beginning, we're going to do that in a manner that is appropriate for the kind of world we live in at the moment, where there is so much focus on, not a total spectrum of ESG, but we will continue to talk about the broad spectrum of ESG, but we will do it in a very sustainable way. And I think the locale of Africa is the right place to be doing that because those resources will be developed.

So I think there's a lot to look forward to, and we'll move onto Q&A.

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Questions and Answers

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Chris Perry, Tullow Oil plc - Head of IR and VP of IR & Communications [1]

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(Operator Instructions)

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James Thompson, JP Morgan Chase & Co, Research Division - Analyst [2]

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It's James Thompson from JPMorgan. So obviously got to start with Enyenra wells, please. I mean just could you lay out, really, what the plan is now in terms of the completion strategy. Can you give us an idea about when you might get back on TEN? I mean I know you don't want them to necessarily commit to a schedule just yet. But I mean how long is the Jubilee well going to take? Could we see you getting back on Enyenra in 2019? Or do you think this is really, we're going to get back on there in 2020?

And given what you've learned in terms of the complexity of the wells, do you see now that you should be drilling simpler wells on TEN going forward?

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Angus Murray McCoss, Tullow Oil plc - Exploration Director & Executive Director [3]

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James, Angus here. So what we've done with the operations in Ghana is to give the engineers time to evaluate solutions, potential solutions for Enyenra-14. So by taking the contribution -- the production contribution out of that forecast, we've given them that time to do that.

Meanwhile, the rig is completing Jubilee producer, J-23. And whilst they're doing that, they're evaluating the engineering solutions. There's a number of activities ahead of us, productive and useful activities for the Maersk Venturer in both Jubilee and TEN. So we're under no pressure. We're putting our engineerings under no pressure to rush back to Enyenra-14 until a solution is configured. And I just want to be clear that those reserves that are associated with Enyenra-14 will get produced. It's just a matter of doing it in a proper order, proper time.

And so that's really as much as I'd like to say about scheduling. We've -- bottom line is we've got useful locations and activities for the Maersk Venturer in both Jubilee and TEN, and we're looking at this very holistically, taking our time on Enyenra-14.

As to the lessons learned, the wells in Jubilee are pretty simple. And through time, we've increased the deviation of those wells, and to increase the sand phase, to increase our penetration across the reservoir, basically is to improve the capital efficiency of the wells. So these deviated wells, which are common practice in industry as you know, increase the productivity per well, increase the reserves recovery per well. So having established that method in Jubilee, when we came to start drilling TEN, we also moved along from drilling simple vertical wells to more deviated wells to more highly deviated wells.

And the Enyenra-14 well was more of that plus of the more highly deviated well. And that likely contributed to the mechanical problem that we're facing at the moment, and we've learned from that. And the future development plans will incorporate that realization on the complexity. But we're very much focused on usefully utilizing that rig on the 2 fields, and there's plenty of opportunities to get after production in Ghana. And as you saw from the resource pies, there's no shortage of discovered resource to develop and produce. So we remain very optimistic about the long-term production outlook for Ghana.

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David Matthew Round, BMO Capital Markets Equity Research - Oil and Gas Research Analyst [4]

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It's David Round from BMO. I'm going to jump to Kenya and the $75 million that you plan to spend this year. From memory, that was a pre-FID number, which has obviously moved to the right. So the question is really, how do we think about costs next year? And then more generally, how are you thinking about capital allocation to Kenya, particularly with other asks that you may have from elsewhere in the portfolio?

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Les Wood, Tullow Oil plc - CFO & Executive Director [5]

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On Kenya, yes, you're right. I mean the pre-FID spend, our mantra for that was always to spend a minimum that would take us to FID. The estimate is, as we say, was $75 million. We haven't yet set our budget or forecast for 2020. But you can anticipate that certainly would be of a similar type level. And of course, the closer you get to FID, much like you've seen with Uganda, we'll start to see a ramp-up. So all I would say at the moment, pre-FID will be of a similar if like monthly run rate, and then that will start to accelerate the closer you get to FID. We've just not said what the budget's going to be for 2020 just yet.

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David Matthew Round, BMO Capital Markets Equity Research - Oil and Gas Research Analyst [6]

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Sorry, just more generally on capital allocation to Kenya. If for example, Guyana comes in.

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Paul McDade, Tullow Oil plc - CEO & Executive Director [7]

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Yes, I think it's a nice problem to have if Guyana comes in and we've got even more choices in terms of where to allocate capital. I think one thing we've always said in Kenya is that ahead of FID, we would come down from the 50% equity and shave our equity down 50%. It seems like a high equity to have in that project. So that will be something we'll do ahead of FID. But we'll know by the end of this year, as we are putting together the budgets for 2020, where we are in Guyana and what allocation we want to spend in Guyana, and yet, we will maintain our kind of capital discipline about looking across the portfolio. So we'll see where we get to.

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James Carmichael, Macquarie Research - Senior Analyst [8]

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It's James Carmichael from Macquarie. Just on Kenya again. So 3 months ago, I guess we were sitting here and talking about FID in late 2019. And obviously, now we're talking H2 2020. So just interested to understand what the main items are that have changed over that time? And what are the, sort of the big ticket items that we need to look forward into H2 to sort of get confidence on this new time frame?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [9]

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Yes. So you're right. But I think one thing you maybe noted from our language as we went through the year, and with respect to kind of late '18 and then through '19 into -- for Kenya, was we started using the word ambitious. I think we've got into a place where we probably started to know that it was going to move into 2020. But we're trying to remain with the government focused on pushing forward and getting the HOTs closed. So what we didn't want to do was -- too early, I mean, we have many audiences here, we've got governmental audience and investor audience. What we didn't want to do is kind of shift the target to the right when one, we hadn't done the HOTs, and we didn't really know what the future looked like until we had those HOTs done. And we don't really want to take the pressure off the government to kind of focus in on getting those HOTs closed.

So I think we held on to the end of '19. Certainly, I say we tried to point, and the line was in our text, that it was a very, very ambitious target, and therefore, likely to slide. I think what we've been able to do now is sit with government and say well, what are the tasks ahead of us? We've got many kind of oil company technical tasks, which are kind of well ahead. So the ESIAs, for example, we'll pretty much be submitting them, I think, over the next month or 2. And actually, the approval time for the government means that they could be approved as early as, I think, middle of next year or thereabout. So they're way off the critical path. What we decided to be is kind of prudent and say that the things are likely to stay on the critical path because there's maybe more uncertainty in land and water and to some extent, pipeline financing, depending on how we go about that because the land and the water is more in control of the government. And therefore, we've been prudent and kind of taken a second half 2020.

So I think the kind of milestones we'll be submitting, I think they're listed on this slide, submitting the ESIAs. We've already completed FEED, we're probably, early next year, going to kind of attend the process for the contracts. And then the land, the process -- it's a well-trodden process in Kenya in terms of acquiring the land. And in fact, there is a very substantial governmental team actually up in the counties at the moment, walking the pipeline route and working through the gazetting -- or not the gazetting but the assessment of the land. So that appears to have taken off a fair piece. But again, we're not fully in control of that. So we just need to be, I suppose, just careful in getting overly ambitious about what that take. So that's kind of the driver for the second half.

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Sasikanth Chilukuru, Morgan Stanley, Research Division - Research Associate [10]

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It's Sasikanth from Morgan Stanley. I had a question on -- regarding Uganda. You mentioned that you're looking at, considering all options for the pursuing of the sale, I was just wondering what other options were? And also regarding the remaining milestones are, the pipeline and the Kingfisher ESIAs, those seem to be kind of -- pretty much consistent on being the remaining milestone and all. I was just wondering what the issue there was? Will it be resolved this -- in the second half? What gives you that confidence?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [11]

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Yes. So maybe the second question first. I mean there's nothing really to worry about the Kingfisher ESIAs. CNOOC currently in control of that. Total were in control of the Tilenga. CNOOC were a little bit behind on the ESIA process. And I'd say, behind Total, Total were moving ahead. We've seen the more complex Tilenga ESIA being approved by government, and there's no real reason to believe that in an orderly way the Kingfisher ESIA will get approved as well. So we don't see that as a really critical path item.

I think the main items that Total have their focus on at the moment is the pipe, the kind of physical aspects of the pipe. I know the surveying is (inaudible) completed. The tendering for the pipe is pretty much completed. We know who the contractor will be. It's more the commercial -- the final commercial and legal construct around the pipe and the agreements between the JV partners, Uganda and Tanzania. That's, I would say, more the critical path rather than anything physical at the moment.

And with regard to all options, I think we highlighted that in June just because we recognized a deal that should probably take 12 months to complete or so. 2.5 years later, okay, the first year was around the debate about who took what ownership. But actually, now we're into kind of over a year of the government discussion and trying to get the approval. And I think what we've really just tried to focus was that we have a construct on the table. We will continue, as I said earlier, trying to drive that construct to closure, but we want to kind of signal to all parties that we are going to come down from 30% to 11% prior to FID. And if we can't close the deal that way, we will have to go and look for other ways to close the deal. Either different constructs that are more acceptable to government and give us the right outcomes or [tempt us]. So it's more signaling that if this can't get over the line, we're not going to go through FID at 30%. And then the deal will become the critical path, which, obviously, we've been trying to avoid and we want to avoid. But if we don't get closure, it will become the critical path of the project.

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Michael J Alsford, Citigroup Inc, Research Division - Director [12]

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It's Michael Alsford from Citi. So a question I've got on Ghana. I just want to come back to sort of activity levels there. You've obviously dropped down from 2 to 1 rig in the second half. As we look into 2020, how should we think about activity levels for Ghana and the corresponding production uplift that we could see from the area? Because Les talked about low supply chain costs, Angus talked about the deep well inventory, but it doesn't sort of seem to translate into the activity levels that you're pushing through in the area. And I want...

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Paul McDade, Tullow Oil plc - CEO & Executive Director [13]

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Yes. No, I think maybe generically, I mean you saw us when we looked at the budget for last year, 2018. I mean we know we've got a lot to drill out in Ghana and the likelihood in the kind of short to medium term, all other things being equal, like oil price, income levels, we're likely to have at least 1 rig there because there's a lot to do. But as Angus kind of highlighted with the inventory, there's things we can do today, which are production today, like there was some of the roles in drilling. There's other areas where we really need to get after and drill because they are more satellite to the fuel. So they'll require we drill them, we understand them and then we go and get the infrastructure as we'll have to put additional subsea equipment down there. Obviously, they are not an immediate contribution to the production, but they will -- they are a contribution over a multiyear period.

And then there's kind of other prospectivity, which is kind of almost longer lead in terms of the time from you drill it till you get to on stream, we've got a whole inventory. And I think as we look at the budget for 2020, I think we said it earlier in terms allocation for capital, we need to say, how much money do we spend in Ghana for kind of short-term production delivery. How much do we invest today to ensure we sustain production over the medium term, i.e. drilling some of these outliers, et cetera, and how much do we allocate elsewhere in the Kenyas, and hopefully with success in Ghana and Guyana. So I think it's probably safe to assume oil price at kind of level, you'd want to certainly have 1 rig in Ghana. And then just depending on capital allocation, you may up that as we did this year. We purposely took up to 2 rigs to kind of get ahead. And then took that rig away. And would we bring back a second rig? Maybe is the answer, just depends on whether there is to drill or do we want to drill in and what the capital allocation pressures on us elsewhere in the group.

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Michael J Alsford, Citigroup Inc, Research Division - Director [14]

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And then, sorry, just a follow-up on Kenya and the Heads of Terms. So wanted to understand your role in the pipeline project. You talked about maybe bringing in other people to do the pipeline and then take an equity side there. So I just want to get an understanding of where you saw Tullow's role in the pipeline project?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [15]

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Yes. We see ourself as the party that's driving the overall project and the pipeline is an integral part. I mean the legal stature of the pipe because the pipeline is not part of the PSA. It's a kind of midstream event. But in terms of our role, we see ourself very much as the party that is leading the project. And the project combines the 2 parts. No point in having one part without the other. So we see ourselves taking a driving role in the overall. And that's [telling what you're doing]. We are the ones that are liaising with the government and the teams of people that are working their way through the various counties and doing this, working the pipeline route at the moment, so we're driving that. And we'll continue to do that until we get to FID.

I think in terms of farm-down, that's more just the kind of totality of it. We really don't see the right equity being 50% of the whole project. We'd rather be down closer probably to the kind of 30% of thereabouts. So that would be a target at some point between known FID, bring in another party in to reduce our equity. And then on the financing of the pipeline, a lot of question about how do you finance the pipeline? And certainly, do we put some project financing together? And how do we minimize our kind of upper front capital exposure to the pipeline, something that we can now get on? One of the things we needed was the Heads of Terms really defined a lot of the legal commercial principles that, for us to go and talk to banks and other support, they need to -- these principles. I mean they just started asking questions, which we didn't know the answer to because we didn't have them in the HOTs. Now that we have the HOTs, we actually can get into a more engaged conversation with -- on the project finance. So that will start to take some color, I think, over the next 6 to kind of 9 months.

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Alwyn Thomas, Exane BNP Paribas, Research Division - Analyst of Oil and Gas [16]

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It's Alwyn here from Exane BNP Paribas. I just want to ask, given some of the issues in -- at TEN, you previously talked about business development opportunities and perhaps allocating some capital there to help sort of broaden the risk profile of the group. I just -- I thought I'd ask for an update on that, if that's all right.

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Paul McDade, Tullow Oil plc - CEO & Executive Director [17]

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Yes. I think there's -- we look at that at 2 levels. I mean we have been doing some kind of inorganic activity, that's why the chart that Angus shows, we've got a really strong production in Gabon at the moment. That was a little bit of small acquisition of small equities in and around some of the fields that we operate. And when I look at what we kind of paid for those assets and how they have developed, and now, that was fantastic investment in terms of return on capital invested. And it sustains that part of the business. And we continue, as Angus alluded to, continue to look for those small equity opportunities, but we've always -- we've been always clear that for the growth of the company, exploration is one leg of that growth.

I think there are going to be M&A opportunities in West Africa as that area matures and the majors will leave over the coming decade or so. And I think Tullow is very well placed to take a part in that activity. So we have an M&A team. They look at this most of -- Angus alluded to, and we did last year. They look at big opportunities. And if we came across a kind of a larger opportunity that was of interest and we thought could add shareholder value, then that's something we may pursue. But it's a kind of -- I think it's an important thing that we should be watching out all the time and understanding what's happening out there.

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James William Hosie, Barclays Bank PLC, Research Division - Research Analyst [18]

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It's James Hosie from Barclays. I'll pose you another question on TEN. Obviously, at the start of the year, your target was to do it over 80,000 barrels a day from TEN gross. Is that now the objective for 2020?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [19]

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Yes. I mean I think with -- I'll give some comment as well. On TEN, we known we've got an FPSO that's got capacity beyond 80,000. We had a kind of headline 80,000. If you think, originally, the original plan for TEN was to go and drill probably what, Angus, 15 wells of whatever upfront and get it on stream. That was somewhat frustrated by the boundary dispute originally. So we've already had a kind of lower flatter profile from TEN. And you have background decline.

So today, if we decide -- if the team decided to go back to Enyenra-14 this year and get it on stream, we could have an exit rate that -- because just now, we're running probably around 70,000 barrels a day at TEN. That well, as we alluded to, is a big producer. So that came on stream, kind of ahead of year-end. And then we'd exit the year over 80,000, for sure. And next year, it just -- in terms of average for next year, it depends on how much capital we allocate and the order in which we do the wells in TEN. I think what's important is we're allocating the capital to the right places to get the kind of maximum impact. So we'd love to get it over 80,000. We'd love to get it higher. But it will depend on how we allocate capital.

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Mark Wilson, Jefferies LLC, Research Division - Oil and Gas Equity Analyst [20]

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Mark Wilson from Jefferies. And by the way, I'd like to also say thank you, and good luck to Chris in his new role. We've had a fairly robust exchange of views over the times, but level of disclosure that Tullow have given over the years is second to none. So good luck.

My question is regarding difference in wording between Kenya and Uganda. In Kenya, you've talked quite specifically regarding the land gazetting and acquisition of land for the pipelines, whereas in Uganda a lot of the commentary is regarding the tax discussions in terms of being a delay. So if the surveying has just got completed, geotechnical, geo-surveying of the pipeline for Uganda, where does the land acquisition stand for that part of the Tilenga project, both in Uganda and Tanzania?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [21]

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Yes. So my understanding, Mark, is that the land acquisition, I mean the way a land is acquired in different countries, actually varies country by country. I know that already, and therefore I don't have all the details in my head, but I now already, say, in Uganda that the resettlement programs are on -- are actually ongoing in terms of the land's being acquired and people are moving, so that, that land gets freed up, so that's ongoing. And I understand in Tanzania that there is a government structure where they will acquire the land because that -- most of that land for the pipeline is kind of uninhabited areas. So it's more you're just dealing directly with government.

And again, my understanding in Tanzania is it's not a particularly complex item with respect to acquiring the land within Tanzania. I can't say exactly today where that's at. But certainly, it's not something that's talked about as a critical path item. I think the critical path for Uganda, with respect to the pipe, is more the kind of commercial, legal finalization of that structure between Tanzania, Uganda and the JV partners rather than the physical land itself.

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Amy Wong, UBS Investment Bank, Research Division - Head of European Oil Services, Executive Director & Analyst [22]

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Amy Wong from UBS. Just a question on Guyana, where you flagged that there are 2 options for drilling in 2020. What are the -- some of the things that are going to help you decide what those options are? Are they going to be quite dependent on the results in 2019? Or are they going to be completely different prospects you're going to be looking at?

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Angus Murray McCoss, Tullow Oil plc - Exploration Director & Executive Director [23]

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Yes. So we've highlighted 2 drilling options 2020 for Guyana. Clearly, they're going to be dependent on the outcome of our 3 wells of Jethro, Joe and Carapa. Purposefully, Jethro's testing the lower tertiary, Joe's testing the upper tertiary and Carapa's testing the Cretaceous. So the opening campaign gives us a broad suite of tests across the acreage. So clearly, if 1 or 2 of those wells were to be discoveries, we would then be more inclined to follow-up on that particular play than the other play, for instance.

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Stephane Guy Patrick Foucaud, GMP Securities L.P., Research Division - MD, Institutional Research [24]

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Stephane Foucaud from GMP FirstEnergy. And back on well 14 in Ghana, sorry, what are the options being considered to address the well problem? Is it re-drill, side track, some sort of culturing operations? What's the range of potential outcome?

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Angus Murray McCoss, Tullow Oil plc - Exploration Director & Executive Director [25]

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Yes. So it's -- our well engineering team is addressing the challenge at the moment. They are working through all of the possible remedial actions. So we're not excluding anything at the moment, and they'll draw their conclusions shortly as we mobilize the rig. I can't really say much more, Stephane, at the moment. They're doing the work, yes. And we've just basically taken the time pressure off them by taking the production contribution out of the forecast, just to give them a clear message that they've got time to work this through properly.

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Colin Saville Smith, Panmure Gordon (UK) Limited, Research Division - Oil and Gas Analyst [26]

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It's Colin Smith from Panmure Gordon. Question for Les, isn't enough to say so far. There were some big jump in the tax rate in the half and it was also a pretty big jump in cash taxes paid as well. And I just wonder if you could explain what was behind that and what that means for future earnings and cash flow generation, post-tax for the company?

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Les Wood, Tullow Oil plc - CFO & Executive Director [27]

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Yes. So if you look at the cash tax, in particular, I'll just put that into our scheduling. So you're right. If you look at the cash tax for the first half, that's probably higher than people anticipated. But full year, what you'd expect is it'll be -- settle less cash tax in the second half, and that's when we're expecting some rebate. So it's purely a scheduling item. So no surprises there, I would say.

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Colin Saville Smith, Panmure Gordon (UK) Limited, Research Division - Oil and Gas Analyst [28]

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And the rate?

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Les Wood, Tullow Oil plc - CFO & Executive Director [29]

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The rate, I mean, I think if you look at the -- as the whole effect of tax rate, which is, I think if you sort of look at that, we can talk a little bit, as we've done before, sort of in detail. I mean I think, year-to-year, again, that's not -- there's no surprise in this on the underlying tax rate. There's kind of ins and outs, that's just in line with expectations. So I can take you through the detail offline. Yes.

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Christopher Courtenay Wheaton, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [30]

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Chris Wheaton from Stifel. Paul, the question for you back on Uganda, please. Just picking up on some of the words you used in your introduction. Is the structure of the farm-down deal between you and Total and CNOOC now an issue that is blocking progress towards FID, in which case, if you're not willing to sanction at the 33% -- the current 33% ownership, what level are you willing to sanction at? Is there a compromise there? You talked about making compromises. Is there a compromise needed to get to FID?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [31]

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Yes, I think the challenge is not so much the amount of equity we're selling. I think if we happen to be -- if we were doing a deal to sell down from 30% to 20% with the same kind of full structure, the challenges we're going through would be the same. So I don't think the equity level is a challenge.

In terms of Total, we are very clear that we feel it's within our right to farm down our equity from the level we have to the level we require to or want to invest. And as always, the farm down's always been off the critical path for FID. The good news is, we've made lots of progress on the physical project, so we are at a point where we could soon be ready to FID. But we were signaling we want a satisfactory closure of the deal because sitting at 33%, it requires our vote to go through FID. And we are not -- we haven't spent 2.5 years setting ourself up to go and invest at 33% in Uganda. That was never the intention and it's not the intention going forward.

So we're quite clear that we want to get them to 11%. There's no real reason why we can't get down to 11%. But I think the way -- I say, we thought the CGT was going to be the challenge, which is why -- maybe wrongly, but we were quite hopeful at the beginning of the year because we did strike a deal around the CGT and that deal has been preserved. But now those other kind of T&Cs particularly around kind of transfer of tax release from buyer -- sorry, from seller to buyer, which now, we're getting kind of strange rulings on that. And we're saying no, that is not acceptable. And that's coming from the partnership to the government.

So I think the signal to the government is we need to get an acceptable kind of standard of approach to this farm-down and to the physical aspects of this, the farm down. And then the second message is that from Total, we will not move through FID at this level of equity. So we all need to focus on the deal. And if we can't get this structure through and we have to kind of stand back and let's say, restructure the deal with CNOOC and Total in a different way, well, that would mean that we'd need to reconstruct the SPA, and then we need to sign the SPA and then we'd need to submit to the government, and that causes delay.

And I think the important thing is the government really want to get on and FID this project and move it to first [off]. It's very critical. I mean this is a massive amount of income for this country. And the income kind of effectively starts as soon as you FID because the amount of inward investment is not -- obviously, proceeds from oil sales, but massive amounts of inward investment to Uganda will occur as soon as this project kicks off, yes, because of the shape of it being an onshore project.

So I think we just got to keep everyone focused that this is a critical element to get to FID. It's in everyone's interest to get to FID, and therefore, let's not delay that FID by continuing to debate over some issues that we should find quite easy to resolve, if there was a mind by all parties to resolve them.

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Christopher Courtenay Wheaton, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [32]

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So that's a Boris Johnson style of 31st of October, not a Theresa May, 31st of March?

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Paul McDade, Tullow Oil plc - CEO & Executive Director [33]

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I mean we will not go through FID, yes. I think that's clear. That's the [maze we're going]. We're -- we spent a long time kind of getting the balance sheet prepared and getting capital discipline, being very clear what we want to invest and at what levels, and we're going to stick to that, yes. And we're not going to, in any way, get tempted to kind of just say, well, we need to FID and then we'll sort the farm down after. The farm down comes before FID.

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Chris Perry, Tullow Oil plc - Head of IR and VP of IR & Communications [34]

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Can we just kind of see if we've got any questions on the call, please?

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Operator [35]

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(Operator Instructions) Your first question comes from the line of [Thami Iderhosia].

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Unidentified Analyst, [36]

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My first question really is on exploration cost write-off. First half was just about $81 million. I just want to know what the guidance is for the full year, given that $300 million was spent on that in 2018?

Second question is, seeing from the conversations that Uganda FID at the end of the year is looking ambitious. I just want to know how confident you think FID is going to happen at the end of 2019. In addition, when do you think the deal will -- really can be closed, the Uganda deal?

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Les Wood, Tullow Oil plc - CFO & Executive Director [37]

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So I'll take the first one on exploration write-off. So for the first half, you're right. We had about $81 million made up of really 3 major components. One was in Kenya Block 12A, monitoring on our new ventures activity. We don't have our forecast, per se, for the second half because some of the activity, we don't know what the outcome's going to be. So in Guyana, we're going to drill activity. But we're hoping, of course, that we're going to be successful. And then ultimately, again, on our new ventures activity, we always keep a watchful eye on all of our licenses. So we're always clear on what we have written off, but the future write-offs are something that's subject to estimation at the time.

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Paul McDade, Tullow Oil plc - CEO & Executive Director [38]

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And on the Uganda FID at end of 2019, I think what I see is that with regard to the second part, when will the deal close, well, I think all I can say at the moment is the deal will close before we get to FID. Is end 2019 ambitious for Uganda FID? You could say it is, but it is possible because the things that drive FID are physical activities that take a certain amount of time. And I would say those are pretty much all behind us, and the ones that aren't behind us can be completed ahead of -- end of '19. The things that are more uncertain that would cause it to slip into '20 are, one, the deal closure, as I said before; and two, the kind of commercial and legal discussions that still need to be finalized with the government with respect to the upstream and the pipe.

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Operator [39]

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Your next question comes from the line of Al Stanton.

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Al Stanton, RBC Capital Markets, LLC, Research Division - Analyst [40]

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It's a quick question on Uganda, with respect to whether there's a legal out and the opportunity to go to arbitration or invite an independent third-party to come in and rule on the roadblock, effectively.

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Paul McDade, Tullow Oil plc - CEO & Executive Director [41]

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I mean in most kind of agreements that we have, there are options for a kind of arbitration. I don't know that, that's an option we would really -- well, one is an option we really want to pursue, especially with government, where we're going to be an investor for many, many years to come. And we have done in the past, but it's not certainly a preferred option by a long margin. And also, that sort of option tends to take quite some time. And therefore, I think there's the better option is actually for the parties just to come to a sensible compromise and move on to FID. Because you get into the difficulty of you going -- depends what you're arbitrating on, but would you get -- would you go and arbitrate in parallel with actually closing the FID? I mean are pieces that we need to move from 30% to 11% before we get to FID. So I suspect there are, and I know there are options of that routine. They're not things that we would -- it's not a route we'd want to go down.

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Duncan Gregor Milligan, Goldman Sachs Group Inc., Research Division - Equity Analyst [42]

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Duncan Milligan, Goldman Sachs. Just on Ghana again. Given that we've seen 2 drillships for the past couple of months and given that there's 1 for the rest of the year, how do you think about kind of getting back up to plateau production or getting up to plateau production, in the case of TEN, to give the kind of breathing space to go out and drill some of the near-field wells and to think about some of the kind of future prospectivity?

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Angus Murray McCoss, Tullow Oil plc - Exploration Director & Executive Director [43]

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Yes, Duncan. Yes, I think we shouldn't draw a straight line between rig activity and production rigs. And I think Paul talked to that point, too. I mean we're very, very close to having excess well capacity. It's just in those particular instance Enyenra-14 wasn't delivered on schedule, and it's basically taken about 15,000 barrels a day, out of the schedule. There are other activities, which support the sustaining of long-term production in Ghana. There'd be the, in the future, the installation of subsea infrastructure, which allows us to reach out to the eastern flank of Jubilee to the southern extent of Enyenra to the west flank of Ntomme for instance, yes. So it's actually an integrated operation, which includes rigs, but there's other -- there are other engineering elements to this, which have to go through capital allocation and approval and so forth. But the -- I wouldn't read too much into the number of rigs and the production level, yes.

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Chris Perry, Tullow Oil plc - Head of IR and VP of IR & Communications [44]

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Okay. Thank you very much, everyone, for your questions. We've overrun a little bit. So I think we'll draw everything to a close. As always, if you have any further questions, the IR team will be on hand to answer those questions as and when you have them. So thank you very much.