Tullow Oil Case Study
Introduction
(1985) states that “competitive advantage grows fundamentally out of the value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price. There are two basic types of competitive advantage. These are cost leadership and differentiation.” A cost advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost. While differentiation advantage exist when the firm deliver benefits that exceed those of the competing products.
However, the Resource-based View ( 1984, 1987; 1986, 1991, 1989;1991) provides another perspective on competitive advantage. This is hailed as a possible paradigm capable of elucidating and integrating research in all areas of strategy (1993). The basic tenet of the resource-based view is that unique resources are the sources of sustained competitive advantage (1991). To generate such advantage, a resource must be rare, valuable, inimitable, non-tradable, and non-substitutable, as well as firm-specific ( 1986, 1991; 1989; 1991).
Tullow Oil is under the oil and gas industry. According to Grote (2001), stock market analysts see oil and gas exploration and production as an old economy. However, Grote argues that oil and gas industry is the cutting edge of innumerable technological breakthroughs, such as engineering and digital technology, chemical science and the dot.com world. He added that oil and gas industry will continue to dominate the global energy market despite growth in renewable energy resources.
Tullow Oil is founded by , the Group’s Chief Executive, in 1985. Tullow is quoted on the London and Irish Stock Exchanges and is one of the largest independent exploration and production companies in Europe with production exceeding 63,000 barrels of oil equivalent per day. The Group is engaged in oil and gas exploration and production with a primary focus on gas in the UK Southern North Sea and oil in Africa, with an ongoing appraisal and development programme in South Asia.
Particularly, this paper will be concentrating on how Tullow Oil gains the competitive advantage given its strategy of acquiring mature fields. It will be discussing on the strategies the company has implemented, the objectives of their strategy and how this will position the company to remain competitive. Current and projected finances will also be presented.
An Overview of Tullow Oil
Tullow Oil was founded by Aidan Heavy, the Group’s Chief Executive, in 1985. Gas production and sales commenced in Senegal in which a license agreement had been signed in 1986. In 1989, Tullow Oil shares were listed on the London and Irish Stock Exchanges. In the same year, Tullow began its development initiatives with its first onshore UK licenses.
Tullow is quoted on the London and Irish Stock Exchanges and is one of the largest independent exploration and production companies in Europe with production exceeding 63,000 barrels of oil equivalent per day. The Group is engaged in oil and gas exploration and production with a primary focus on gas in the UK Southern North Sea and oil in Africa, with an ongoing appraisal and development programme in South Asia.
In 1990, Tullow signs its first license agreement in Pakistan, laying the foundations of Group’s South Asia core area. In the mid 1990’s Tullow discover the Sara gas field in Pakistan which was brought to stream in 1999. In addition, Tullow acquired Bangladesh and Côte d’Ivoire licenses in 1996. This included the Espoir oil and gas fields where first production was achieved in 2000.
The year 2000 is said to be the beginning of an accelerated pace of activity for Tullow. It started with the acquisition of a ₤200 million of the producing gas fields and related infrastructure in the UK Southern North sea from BP. By 2004, Tullow has acquired 0 million of Energy Africa. It was the remarkable year for the Group since it has transformed to a more balanced oil and gas exploration and production company together with the strong cash flow and upside potential through exploration opportunities and global resource pricing. In addition, by December of the same year, the Group announced a ₤200 million of UK Schooner and Ketch producing assets and surrounding acreage. In just four short years to 2004, Tullow has followed a coherent strategy with a logical progression that has enabled the Group build a leading production and acreage position in the CMS area.
In 2005, Tullow records a positive operating environment, delivering record profits, earnings and cash flow, with buoyant oil and gas prices. New fields are added and major increase in output and good progress in key development projects. Production increased by 44%. Current production is 69,000 boepd. Organic reserves replacement was 118% and total reserves increased by 53 mmboe to 358 mmboe. The Group has already two UK North sea gas discoveries which are in Gabon and Mauritania.
The Group is headquartered in London and employs over 200 people worldwide. Tullow is a dynamic industry player with a diverse portfolio of 90 licenses in three core areas spread across 15 countries in NW Europe, Africa and South Asia. Production is expected to grow to over 80,000 barrels of oil equivalent per day during 2007 and our reserves are over 358 million barrels of oil equivalent.
The Group’s primary listing is on the London Stock Exchange and Tullow’s shares are also listed on the Irish Stock Exchange. The Group is a constituent of the FTSE250 and our market capitalization is approximately £2.5 billion. Over 70% of the issued share capital is held by institutions, with a strong UK shareholder base and growing ownership in both Europe and the US.
Tullow is founded in Ireland in 1985. It has originated in Africa. By the year 1990 became active in South Asia and in the UK gas market in 2001. Over time they have developed a balanced portfolio, with a mixture of oil and gas assets in mature and developing markets and a balance between growing production output and longer-term exploration.
Tullow’s strategy is to build strong positions in core areas and to consolidate niche positions in developing regions. This is managed through production-led exploration and reserve enhancement, operational innovation and focused acquisitions and divestments. Tullow’s aim is to deliver superior returns to shareholders and Total Shareholder Return over the past five years was 325%.
Tullow has a genuine commitment to our environmental and social responsibilities and we look forward to sustaining and improving our high levels of performance in this area as the Group continues to grow. The Group sponsors a wide range of social and community projects in countries where we live and work.
Production
Tullow Oil‘s principal activities are exploring and producing oil and gas and providing technical services to its joint venture partners. Moreover, the Group has a diverse portfolio of 90 licenses in three core areas spread across 15 countries in Europe, Africa and South Asia.
Below are the tables presenting the production of the oil and gas in the three core area, Europe, Africa, and South Asia.
Table 1. Production and Commercial Reserve of gas and oil of Tullow Oil in the three core areas in 2003, 2004 and 2005
1. NW Europe
2005
2005
2.Africa
2005
3. South Asia
2005
Source: 2004 & 2005
The table above presented the comparative production and commercial reserve of Tullow in the year 2003, 2004 and 2005 in the three core areas.
Table 2. Production and Commercial Reserve by Core Area in the year 2004 and 2005
Source: 2004 & 2005
From the tables, it is presented that in 2005, the weighted average working interest production is 58,450 boepd which is 44% higher than the average for 2004. NW Europe has a total production of 42% from the 51% in 2004, Africa has 57% from the 47% in the year 2004 and South Asia has 1% compared to the 2% in 2004. In addition, commercial reserve is also presented showing that NW Europe total reserve is 31% from 21% in 2004, Africa has 61% compared to 70% in 2004 and South Asia has 8% from the 9% in 2004. Group working interest production continues to increase, current production is over 56,000 boepd this year (2006).
In comparison with 2005 results of NW Europe operation, weighted average working interest production in 2004 was 40,600 boepd which is 62% ahead of 2003 levels, with a geographic balance between NW Europe (51%), Africa (47%) and Asia (2%) and a product balance between oil (56%) and gas (44%).
A press release (2006), Tullow Oil UK Business Update, states that Tullow’s NW Europe interests are primarily focused on gas in the Southern North Sea. Tullow has substantially extended and enhanced its position through exploration drilling, active development, participation in licensing rounds and a series of bolt-on acquisitions. Moreover, Tullow’s interest includes the CMC and Thames/Hewett areas. Natural gas production from Horne and Wren commence on June 9, 2005 and reached a stabilized flow rate of 60mmscfd. Tullow has also gone into a 50:50 joint venture with Centrica. The development project is comprised of two horizontal wells in which Tullow has 67% interest.
Moreover, Horne and Wren discoveries have resulted in Tullow operating development with 50% interest. Production from Horne and Wren wells brings the throughput of the Thames infrastructure to over 190 mmscfd, a four fold increase since early 2004. This increase further reduces the unit operating cost of this regional hub and extends the life of the Thames facility, thereby enhancing the value of Tullow’s other interests in the Thames Area fields.
In addition, the Opal exploration well has successfully encountered gas bearing reservoir in the Carboniferous section. Tullow has currently has a 46% interest in the discovery.
In Africa, Tullow has production in Gabon, Cote d’Ivoire, Congo (Brazzaville) and Equatorial Guinea. Tullow also has exploration programs in Morocco, Mauritania, Senegal, Cameroon, and Uganda (2005).
Finally, in South Asia, Tullow has production and exploration interests in Pakistan and exploration activities in India and Bangladesh. According to the report, in 2004 the Group had exploration success in Bangladesh, where the Bangora-1 exploration well tested gas at an aggregate rate of 120 mmscfd gross, and in Equatorial Guinea with the Akom North oil prospect, a satellite to the Okume complex (2005). The Group drilled 16 exploration wells, of which seven were discoveries. Currently South Asia accounts for 1% of Group production.
In an interview, Aidan Heavy states that after having acquired the Energy Africa, production has doubled to 54,000 barrels a day overnight. He admits that the deal was a gamble, however, he has a good track record of betting big and winning. The acquisition, which was completed in June, doubles group reserves to 174 million barrels (2004).
Currently, in the first half of 2006, Tullow has already drilled 18 development wells increasing the Group working interest production to 63,200 boepd which is 8 % higher than 2005 levels (2006).
Financial Analysis
Table 3. Five Year Financial Summary of Tullow Oil
IFRS
UK GAAP1
Group Profit and Loss Account
2005
£’000
2004
£’000
2004
£’000
2003
£’000
2002
£’000
2001
£’000
Sales Revenue
445,232
225,256
225,256
129,625
110,610
76,633
Cost of Sales
(243,149)
(141,228)
(131,071)
(82,249)
(75,350)
(46,480)
Gross Profit
202,083
84,028
94,185
47,376
35,260
30,153
Administrative Expenses
(13,793)
(11,573)
(11,017)
(3,059)
(3,925)
(3,859)
Profit/(Loss) on Disposal of Oil and Gas Assets
36,061
2,292
2,292
(952)
914
–
Exploration Costs Written Off
(25,783)
(17,961)
(17,961)
(12,772)
(4,169)
(3,945)
Operating Profit
198,568
56,786
67,499
30,593
28,080
22,349
Loss on Hedging Instruments
(159)
–
–
–
–
–
Finance Revenue
4,367
3,458
3,458
2,016
1,409
1,371
Finance Costs
(24,197)
(13,449)
(12,960)
(8,730)
(9,044)
(7,708)
Profit from Continuing Activities before Taxation
178,579
46,795
57,997
23,879
20,445
16,012
Taxation Charge on Profit on Ordinary Activities
(65,443)
(15,460)
(25,048)
(12,958)
(7,649)
(6,702)
Profit for the Year from Continuing Activities
113,136
31,335
32,949
10,921
12,796
9,310
Dividends Paid
(14,555)
(6,995)
(6,995)
(3,782)
–
–
Retained Profit for the Financial Year
98,581
24,340
25,954
7,139
12,796
9,310
Earnings per Share
Basic – Stg p
17.50
5.88
6.18
2.92
3.56
2.61
Diluted – Stg p
17.20
5.81
6.11
2.90
3.51
2.56
Group Balance Sheet
Fixed Assets
897,602
649,967
599,728
193,263
195,886
207,659
Net Current (Liabilities)/Assets
(71,273)
21,394
23,353
32,521
15,771
8,685
Total Assets less Current Liabilities
826,329
671,361
623,081
225,784
211,657
216,344
Long Term Liabilities
(437,310)
(295,894)
(243,997)
(109,863)
(111,357)
(124,344)
Net Assets
389,019
375,467
379,084
115,921
100,300
92,000
Called Up Equity Share Capital
64,744
64,537
64,537
37,784
35,981
35,847
Share Premium Account
123,019
121,656
121,656
14,198
2,485
1,993
Other Reserves
60,589
148,591
148,591
45,593
69,213
69,213
Profit and Loss Account
140,667
40,683
44,300
18,346
(7,379)
(15,053)
Equity Shareholders’ Funds
389,019
375,467
379,084
115,921
100,300
92,000
Source:
As shown in the financial summary for the last five years, there have been fluctuation in the retained profits of the company but there have been a tremendous increase in profit in the year 2005. Generally, the five years time, sales revenue has continually increased. In addition, assets of the company have continually increased which is a good sign of good asset management.
Table 4. Comparative Financial Results for the year 2004 and 2005
2005
2004
Change
£ millions
£ millions
Sales Revenue
445.2
225.3
Up 98%
Operating Profit
198.6
56.8
Up 250%
Profit Before Tax
178.6
46.8
Up 282%
Operating Cash Flow before Working Capital
288.1
139.5
Up 106%
Stg p
Stg p
Basic Earnings per Share
17.50
5.88
Up 198%
Final Dividend per Share
3.00
1.25
Up 140%
Source:
The above table is the comparative financial results of the operating year 2004 and 2005. A horizontal analysis is used to analyze the financial status and performance of the company. Horizontal analysis is one type of financial ratios which is used to analyze the percentage change in sales over time and be able to know the necessary decision for the company.
As shown in the comparative financial results, the year 2005 is a year of progress. Sales revenue increased by 98% to pounds 445.2 million compared to 2004 which is up to pounds 225.3 million reflecting a full year contribution from the Energy Africa assets, nine months contribution from the Schooner and Ketch fields and oil and gas prices significantly higher than in 2004.
Operating profit increased 250% to pounds 198.6 million compared to 2004 which is up to pounds 56.8 million and profit before tax increased 282% to pounds 178.6 million compared to 2004 which is up to pounds 46.8 million including the profit of pounds 36.1 million on the disposal of non-core oil assets in the UK and offshore Congo and the sale of equity in the Horne & Wren development.
Basic earnings per share amounted to 17.50 pence, an increase of 198% compared to 5.88 pence in 2004. Operating cash flow before movements in working capital amounted to pounds 288.1 million, an increase of 106% over 2004, reflecting the quality of the Group’s producing asset base and allowing record levels of reinvestment in the business.
Moreover, the Group’s capital expenditure programs are comfortably funded from strong operating cash flow and profit on disposals. The refinancing initiatives undertaken during 2005 have significantly enhanced the Group’s financial flexibility over both the short and long-term. In line with the Group’s progressive dividend policy, and reflecting the cash generated by the business and the capital investment and acquisition opportunities available, the Board recommends a final dividend of 3.00 pence per share. This brings the total dividend for the year to 4.00 pence per share compared in 2004 which is 1.75 pence per share.
In addition to show the company’s operating efficiency and over all returns on asset and capital, a profitability analysis should be used. There are many profitability measures. In here we use net profit margin to measure the percentage of each sale peso remaining after all expenses. Net profit margin is computed by dividing net income by sales.
Net profit margin (2004) = net income / sales
= 24,340,000 / 225,256,000
Net profit margin (2004) = 0.11
Net profit margin (2005) = net income / sales
= 98,581,000 / 445,232,000
Net profit margin (2005) = 0.22
From the computation, the net margin of 2004 is 0.11 which has doubled by the year 2005. This means that in 2004, in every ₤1 invested there is a net profit of ₤0.11 while in 2005 for every ₤1 invested there is ₤ 0.22 net profit. The net profit margin of the company has increased which means that the company has been operating more efficiency in 2005 compare to 2004.
Company’s Objective
Tullow’s vision is to be a leading independent oil and gas Group, with a balanced portfolio of exploration and production assets. This vision is underpinned by a consistent growth strategy, the cornerstones of which are a focus on gas in the UK Southern North Sea and oil in West Africa, with an ongoing appraisal and development programme in South Asia. Tullow’s key objective is to maintain consistent growth over the long term.
Company’s Strategy
Tullow’s strategy is to build strong positions in core areas and to consolidate niche positions in developing regions. This is managed through production-led exploration and reserve enhancement, operational innovation and focused acquisitions and divestments. Tullow’s vision is to be the leading independent oil and gas Group with a balanced portfolio of exploration and production assets. Tullow has a consistent growth strategy. With this strategy, Tullow work hard to exploit and expand their current reserve base. They combine development and near infrastructure exploration with high impact, higher risk exploration. They make selective acquisitions to complement our existing asset base and we drive their performance with operational innovation and active portfolio management.
Tullow has seen a positive outlook on the performance and growth of the business in the next year of operation. The next year is seen to be a year of consolidation and delivery from Tullow’s enlarged portfolio of assets. The Group has an active programme of development and exploration that will continue to grow and develop the business. The exploration risk-reward profile will be enhanced by farm-outs of licenses where value has been added through geological and geophysical surveys.
At a global level, the market environment and oil and gas prices are expected to remain strong. In particular, the fine balance between gas supply and demand in the UK underpins the Group’s view that the current favorable gas pricing environment in the UK will continue over the coming years.
The 4 million realized from the disposal of non core assets, combined with a planned consolidation of Group banking facilities during 2005, leaves Tullow conservatively funded and well placed to continue to pursue its growth strategy.
Business Wire reported that Tullow continued to have a positive outlook of the future. Tullow has steadily developed a balanced portfolio of international exploration and production assets. The performance of these assets during 2005 and the organic growth expected in 2006 provide a solid base for further growth. Projects such as the development of the Kudu field in Namibia and the exploration programme in Uganda provide possibilities for significant changes in the Group’s scale, while the Group’s cash flow and modest gearing create the flexibility to accelerate programs and take advantage of development and acquisition opportunities as they arise.
Moreover, by the following year, Tullow will be able to have six UK exploration wells. In Namibia, 2006 will be an important year both for the gas sales negotiations for the gas-to-power. In Uganda, Tullow and its partners plan a minimum of four further onshore wells in 2006 and two additional wells in Lake Albert in 2007 as part of an extensive exploration and appraisal programme across its Albertine Basin acreage.
In Bangladesh, extensive 3D seismic, appraisal drilling and the initiation of production on a long-term test basis to help supply much needed gas to the Dhaka region. The introduction of Total as a partner in offshore Blocks 17&18 brought a renewal of activity with the recent commencement of an offshore seismic survey.
In Pakistan, work on the development of Chachar field continues, with first gas forecast for the final quarter of 2006. Drilling has commenced on the Shahpur Chakar well in the Nawabshah block. In India, joint venture is integrating information from significant regional discoveries to the South and the North, and the companies anticipate a multi-well drilling programme in 2007.
According to Aidan Heavey, “their production is growing strongly and is expected to reach 75,000 boepd by the end of the year. On the exploration front they plan to drill over 20 wells, including further wells in Uganda, where they have scheduled an extensive exploration and appraisal program to build on the recent M’Puta and Waraga discoveries.
The outlook for Tullow is very positive. Oil and gas prices are strong and forecast to remain so. Their existing assets and work programs are expected to deliver robust organic growth and our new ventures program and other development opportunities offer compelling upside potential.”
In 2005, according to the report, major investment in people and facilities has been made reflecting the material growth of the Group in recent years. Moreover, during 2005 the London team moved to a new office at Chiswick in which over 40 additional staff were recruited and dedicated teams were put in place for the important Schooner & Ketch and Kudu projects (PR Newswire, 2006).
Tullow Oil Competitive Advantage
Tullow is a leading independent oil and gas, exploration and production group. The Group has interests in over 90 production and exploration licenses in 16 countries and focuses on three core areas: NW Europe, West Africa and South Asia.
In order for Tullow to survive, the company has to have some degree of competitive advantage. Competitive advantage, according to (1985), comes from the value that firms create for their customers that exceeds the cost of producing that value. The key concern for a business is to capture that value which is greater than its cost.
Additionally, he identified two types of competitive advantage, which were cost leadership and differentiation. The source of above-average performance of a firm in the long run is a result of sustainable competitive advantage, and the three generic strategies which he suggests leads to above-average performance are cost leadership, differentiation, and focus.
However, there has been another research which has illustrated by the work of (1986, 1991), (1991), (1989), (1991), (1992), and (1993) known as the resource-based view.
According to (1996), the resource-based view focuses on heterogeneity among firms in the same industry. It views firms in terms of unique bundles of resources and capabilities that provide the basis upon which a competitive advantage can be pursued. Moreover, the normative implication of this view is that the firm should base its strategy on its own resources and capabilities. Irrespective of the markets or combination of markets served, firms should seek to leverage the resources best suited to those markets. This may even lead to a situation where the firm will choose to compete in inherently less structurally attractive markets if it possesses resources that are valuable in serving those markets (1991).
According to (1989), competitive advantage is not inherent in all resources but, rather, in only those that meet a rigorous set of conditions ( 1991, 1993).
The first condition is that the resource must be valuable. It must provide the opportunity to exploit some environmental opportunity or neutralize some threat. (1991) suggests that resources are considered valuable when they enable a firm to conceive of or implement strategies that improve the firm’s efficiency or effectiveness.
Second condition is that resources must have the characteristic of rareness. Firms should possess unique bundles of skills and resources that can attain a sustainable competitive advantage.
Third, there must be the condition of imperfect mobility of resources. Imperfectly mobile resources include those that are idiosyncratic to the firm ( 1979), those for which property rights arc not well defined ( 1989), or those that are co-specialized assets (1986).
Finally, resources must be imperfectly imitable (1991) or provide some ex-post limits to competition, that is, subsequent to a firm gaining a superior position and earning rents, forces must exist that limit competition for those rents (1993). For a firm to be in a position to exploit a valuable and rare resource, there must be a resource position barrier preventing imitation by other firms (1984).
From the information gathered and stated above about Tullow operation and finances, competitive advantage of the company can be identified. Here are some of the competitive advantages that the company is possessing.
Progressive Dividend Policy
The Group’s capital expenditure programs are comfortably funded from strong operating cash flow and profit on disposals. The refinancing initiatives undertaken during 2005 have significantly enhanced the Group’s financial flexibility over both the short and long-term. In line with the Group’s progressive dividend policy, and reflecting the cash generated by the business and the capital investment and acquisition opportunities available, the Board recommends a final dividend of 3.00 pence per share. This brings the total dividend for the year to 4.00 pence per share compared to 1.75 pence per share in 2004.
Major investment in People and Facilities
A major investment in people and facilities has been made reflecting the material growth of the Group in recent years. During 2005 the London team moved to a new office at Chiswick, and recruited 40 more staff and dedicated teams were put in place for the important Schooner & Ketch and Kudu projects. Group’s cash flow and modest gearing create the flexibility to accelerate programs and take advantage of development and acquisition opportunities as they arise.
Rigorous Operational Risk Management
Risk management is central to our business, particularly in light of the international spread of our activities and the dynamic nature of our industry. The Group gives regular consideration to the key risks facing the business, with particular reference to those concerning the overall safety of our operations, the geographical balance of our activities and the characteristics of our individual assets and joint ventures
Record Operating Cash Flow and Strong Balance Sheet
The strong pricing environment, allied to increasing production and effective control of underlying operating costs, led to record operating cash flow before working capital movements of pounds 288.1 million, 106% ahead of 2004. This cash flow enabled the Group to maintain modest gearing of 36% at year end, to increase dividends to shareholders in respect of the period by 129% and to invest pounds 193.0 million in exploration and development activities in the year.
Over 80% of Group capital expenditure was associated with ongoing development and production enhancement projects in the UK, Gabon, Congo (Brazzaville), Equatorial Guinea and Cote d’Ivoire. The programs associated with this expenditure have allowed Tullow to achieve organic reserve replacement of 118% over the period. Tullow has approved total 2006 capital expenditure of pounds 280 million across all assets, driving group production to a target of over 75,000 boepd by year end.
Net assets at December 31, 2005 amounted to pounds 389.0 million (2004: pounds 375.5 million). Net assets were reduced by pounds 120.4 million in the year due to the recognition of a hedge reserve in accordance with IAS 39 (adopted January 1, 2005). An increase in net assets (foreign currency translation reserve) of pounds 32.4 million resulted from the strengthening of the US Dollar against Sterling from US.93 to US.72 in the year.
Successful major Refinancing
Over the last five years Tullow has undertaken a range of acquisitions and field developments, all of which have been wholly or partly debt financed. During 2005 the Group completed a US0 million refinancing, the largest such facility ever negotiated by a UK independent oil company. This has allowed Tullow to consolidate existing borrowings into a single facility, to halve its collateralization obligations and to maintain financial flexibility for future growth. The Group currently has over US0 million of unutilized debt capacity in addition to its cash balances.
Significant Operational Milestones
In the UK we completed our first operated offshore development and assumed operatorship of the Schooner and Ketch fields, helping to increase our net production to over 200 mmscfd, 60% of which we operate. In Africa, our focus was on development and infill programs, most notably in Gabon, where our proven and probable reserves increased by over 50% during the period. In Equatorial Guinea the Okume project remains on target for first oil during 2006 and in Congo (Brazzaville) the M’Boundi field continues to perform strongly. In Asia, during 2006, the Bangora long-term test will commence and the Chachar development will produce first gas. Organic reserves replacement for the year was 118% and total reserves increased by 53 mmboe to 358 mmboe.
Financial Strength and Progressive Dividend Policy
Tullow’s capital expenditure requirements are comfortably funded from Group resources. In 2005, operating cash flow before working capital movements amounted to £288.1 million (2004: £139.5 million) and profit on non-core disposals was £36.1 million as we rebalanced our asset portfolio.
Commitment to Corporate Social Responsibility
Much of the Group’s success has been based on building and fostering strong relationships with stakeholders, employees, industry partners, local communities and shareholders. Tullow conduct business to the best industry standards in a manner that is safe, environmentally acceptable and sensitive to the needs and concerns of local communities.
Valuable Assets and Further Opportunities
Tullow has steadily increased its acreage and developed its reputation as a technically innovative and commercially astute operator since its entry into the UK Southern North Sea in 2001. During this time, the UK has become a net importer of gas to satisfy indigenous demand. UK gas production was over 200 mmscfd for the first time in December and has since increased to 210 mmscfd. Tullow has over 40 licenses and a strategic position in terms of acreage and infrastructure. Tullow operate over 60% of UK production, allowing the Group material control and influence over its daily production, gas sales and the management of its assets.
There is an outstanding opportunity over the coming years to continue to build a truly Pan-African oil and gas business. In 2005, they invested over £139 million in our African operations with exceptional results. Current African oil production exceeds 34,000 beopd, with further increases anticipated during 2006 as new developments in Côte d’Ivoire and Equatorial Guinea come on stream. Africa is a region with high exploration potential and recent results in Uganda and Mauritania are very encouraging.
Tullow is establishing a presence in new countries where attractive prospects exist. In 2005, the Government of Madagascar approved Tullow’s participation in onshore Block 3109. Further exploration and development opportunities are in the final stages of negotiation and should include entry into at least one additional new country in 2006.
In Namibia, the Group is making steady progress, together with our joint development partners, in ensuring that the significant potential of the Kudu gas field is realized.
While Tullow’s production in South Asia has been modest, an extensive work programme in 2005, covering a number of important exploration and development projects has the potential to transform the Group’s business in the area.
In India, a 1,152 km 2D seismic programme recently commenced in Block CB-ON/1. The joint venture is integrating information from significant regional discoveries to the South and the North, and anticipating a multi-well drilling programme in 2007.
A Long-term Perspective
The Group has a consistent growth strategy and a long-term perspective. We invest in assets and markets where our skills and focus make a difference and seek developments where modern technology, attention to detail and a rigorous commercial approach adds significant value.
5.88
Conclusion
Based from the information gathered and stated in the paper, Tullow Oil has its competitive advantage. No company will survive without competitive advantage. Tullow has created significant value on service and products they offer to the customers. They also gain competitive advantage through their commitment to their social responsibility having them closer to the community they serve contributing to the success of the business
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