Earnings Transcript for TUWLF - Q4 Fiscal Year 2018

Paul McDade: Thanks for taking the time out to come and join us again for results presentation. Before I start, I would like to thank everyone who sent messages of condolence for the passing of Ian Springett, our former CFO, and friend. I just wanted to say, so thank you to everyone who acknowledged that. And given the number of messages we received from Ian's kind of friends at Tullow and across the wider industry, we decided we're going to collate them in our condolences book and provide them to Aileen, Ian's wife, because I think we feel it is quite important that Aileen sees kind of how privileged we all feel having worked with Ian. So it's just to acknowledge that and let you know. So on to the less important bit about the business after the 2018 results. I mean, 2018 was another strong year of delivery for Tullow. Les will be taking you through the financials, and Angus will update you on the progress across the whole portfolio and also the areas of focus kind of operationally and the portfolio for 2019. But from my perspective, I think I saw '18 as the more important year. It was a pivotal year in terms of the reset of the business that we started as far back as 2014, I feel, was completed in 2018. And as we've reported, we feel like we've embedded a kind of focused and disciplined approach to the business and pretty much everything we do across Tullow, which is a shift, and that continues to have -- well, it's had a major impact on the financials, as we'll see, and it continues to have a major impact and a positive impact on the running and the performance of the business. I think 2018 was also a year where we focused on the long-term future of Tullow. We set out our future vision and the direction for Tullow, and we also started really deeply to think about how we deliver that ambition to significantly grow the value of the Company, and so as we say, a lot about out at the Capital Markets Day last November. I think the metrics on this slide show the progress we have made in establishing, I think, a solid foundation for the business, a clear capital allocation framework that we will use to grow the business. And so kind of put it simply, we'll continue to grow production, we will drive down costs, generate cash, keep gearing in a conservative range and provide return to shareholders, which I'll come back to. But we're ambitious that these are good figures and represent a good start, but I think we're ambitious beyond the figures that are on the screen behind me. I think 150,000 barrels a day is kind of baked into the portfolio we have when we look at what we're producing, 100,000 today and a 50,000 plus potential from East Africa, so we think we can deliver more if we're focused. Costs, we have driven down costs really well. Les will get into that. But I think if we're relentless, we can continue to drive costs down and improve our breakevens. The gearing is great that we're within a range of 1 times to 2 times located at the top end, 1.9 times, massive change from where we were, over 5 times, but we will continue to drive that down and get to the lower end so that we've got a balance sheet that we can work with and use for the growth of the Company. And then also at Capital Markets Day, we made it clear that we are committed to returning capital to shareholders with the capital returns policy, and we made it very clear about 100 million dividend from financial year '19, that being a minimum number and that kind of what we thought is a normal price range for oil. But we're pleased this morning to announce the dividend, the $67 million is the final for '18, which I think just emphasizes to you the strength of the business. And also, the point we made in the statement around Uganda, we really think with the agreements that -- I had the meetings in Uganda earlier this year in January with President Museveni and we have agreement and principle around tax for Uganda and how we're going to move now towards completing that deal. A long time in coming, but we feel we're over the final hurdle now that the paperwork is being prepared. So I think all of that together really gave us the confidence to push out a strong final dividend for 2018. There's a lot of other aspects I want to talk about the long-term kind of vision for the Company, but I'll touch on some of those points after Les and Angus have gone through the 2018 figures. Okay, so over to Les.

Les Wood: So good morning, everyone. It's a -- as always, a real pleasure to be here, certainly after [Indiscernible] announce the strong set of results this morning. So what I'm going to do is take just a little time to walk through some of the numbers and some of the detail. The numbers in 2018 build on a very strong progress that we made in 2017. And as you can see, that's shown by the numbers in many of the green arrows that's actually on the diagram to my right. I'm pleased, as Paul said, that for the first time since 2013, we're delivering a post-tax annual profit. This is a combination of a huge amount of work and effort right across Tullow, and it's something that we've worked very hard on these last few years. And you look at revenue, it went up to $1.9 billion. And if you include our business interruption insurance, that's over $2 billion. OpEx is down by 10%, reaching our target that we'd set ourselves by the end of 2018 to get to $10 per barrel, and I'm going to say a little bit more about costs in a minute. Capital is in -- up $423 million on -- at our full year guidance of $460 million. And that included a second rig in Ghana, as you know, for the final quarter of 2018. Our EBITDAX is up year-on-year, underpinned by a really good production performance, that continued focus on cost discipline that we've talked about. And of course, if you look year-to-year, the average realized price over 2018 was a bit higher than 2017. If you look at the arrows in -- this is quite a bit, if you look at the free cash flow, we've drawn that in as blue, and really, that's because if you look at the underlying performance from the business, we're generally well over $600 million of free cash flow. We did, of course, have the one-off impact of the sea drill litigation. Net debt is down to $3.1 billion and like Paul says, gearing is now 1.9x, so very much within the range that we set ourselves back at the Capital Markets Day. We issued an upside high-yield bond in 1Q 2018. We canceled our corporate facility earlier, if you remember, at the back end of last year. And that means that we have no maturities now until 2021 and we have a headroom of about $1 billion. So we really made such -- a really good progress in this area. For the summary on this of -- numbers on this page, another strong set of full year numbers. It underscores the principles that we set out in our Capital Markets Day around capital returns, and an announcement that Paul said around 2018 dividend, which I'll say a little bit more about that later. The next -- and I've used some of these pictures before, and there are other pictures that we could show in this regard. But what you can see from this is, while we made huge inroads over the last two and three years, now what we're focused on is maintaining that trajectory. So you can see that many of the numbers, both last year and what we're predicting for 2019 is essentially flat, with some room for further efficiency to continue to move downwards. I could say we had a move at about $1 -- just over $1 per barrel out of OpEx. We removed some high-cost production out of the portfolio. We continued to deliver sales -- sorry, savings through further efficiencies and of course, we've started to increase our production. So if you put all of those ingredients together, that delivers the $1 or so that we reduced. And of course, we think there's further to go. We announced back end of last year that we'd achieve the $500 million of three-year cash costs savings that we'd set out in mid-2015 and in fact, we over delivered on that. We delivered over $700 million of savings and a good example of that is, if you look at the chart up on the top right, the net G&A chart, we essentially delivered on our internal stretch target of about $90 million for the year, and what you should expect from us is to continue to keep that trajectory as we go forward. And of course, then on the bottom left, with the financing costs, as we continued to reduce the level of our net debt, of course, commensurate of that will -- or with that will be a reduction in our financing costs. A good example of that is, by reducing or eliminating the corporate facility early, we saved ourselves about $2 million or so in financing costs before this facility was due to end in April this year. So we've got a relay on what we're doing with our costs. I don't have it up here or in the pack, but it's in the appendix -- is we have a slide on hedging, as usual, and really just to say -- what to say about that is the policy is unchanged. We just reviewed our position recently at the board and if you look specifically for 2019, we got about 60% as usual, with the floor this year at $56 per barrel, so up a little bit on last year. And the other thing that's good about the program where we are this year is the degree of access with upside is about 70%, it was about 60% last year. And if you put all those ingredients together, with our low cost production and how we are tackling costs, you can see on the by line that we got a breakeven this year, about $40 per barrel. So even in a lower oil price environment, we will consider that certainly to be in a $50 range. We would still be generating free cash flow, which is a really good place for the business to be. Let me talk a little bit now about our capital investment. Of course, you can see we're still investing in the $200 million to $600 million range. We do have a portfolio that can operate flexibly within that range. So in an environment, let's say, oil prices were to be sustained at the low level, we do have the ability to turn down capital if we want to. And if you look at the program that we set for this year, what's clear is we have the investment opportunities to invest at the higher end if we think that's appropriate. If you look at 2018 specifically, we delivered $423 million, versus our plan of $460 million. That was driven by a few things. One of them would be the arrival of the rig and the timing of the rig in Ghana. We've drilled very efficiently in Ghana in 2018. And then Ian -- if you might remember for those at the Capital Markets, Ian gave quite a few examples where we've made some adjustments to our farm activity and expedition, which have delivered savings and also executional activity, which has been very efficient. And if you look at the Carmorant Well that we talked about before, the Carmorant Well is a very good example of both the portfolio adjustment and efficiency of activity execution. What's also clear, and Angus will talk a little bit of this later, is you'll see our non-op spend this year or last year rather, was a little bit higher than what we laid out, and that's because there was good opportunities to invest in the money, which delivered additional production, and they are having a positive impact on our production for 2019. If you look at 2019 specifically, that's about $570 million. It reflects two rigs in Ghana for the first half of the year, one rig a year then for the balance, a modest step up in expedition spend, and that's driven by the fact that we're going to be drilling three wells in Guyana in 2019, and Angus will talk a little bit about that. But what's clear is we're still able to take advantage of the low cost environment that we still find for services. So while we're almost there on our rig for Guyana, is you should find that we're in a place we're able to still get very efficient activity on cost for our program. One of the things to point out, some gray on the slide is we're showing Uganda data on there. We, of course, will cover that from our deal with Total and CNOOC, and the higher number in 2019 reflects the fact that we expect FID to be around the middle of the year. But all of that CapEx will be covered through the first consideration. Kenya is flat, carefully controlling spend till we get to FID. So really, all in all, we have got a great portfolio and a great set of opportunities to invest in. I'm going to talk a little bit about free cash flow. As you can see, we fell in 2018 on a good delivery in 2017. We generated underlying over 600 million in free cash flow. Of course, we had the one-off adverse impact of the litigation but really all in all, it was a very good performance. As you've heard from Paul earlier, and it was in our update today, we are showing out to the right as we look at 2019, our expectation that we're going to complete Uganda in the first half of this year. If you look at 2019, specifically, I've laid out some ranges as to how we think about free cash flow for this year. If you look at oil price year-to-date, oil prices average about just a shade over $60 per barrel. And then if you look at the consensus average for the remainder of the year, it's about $66. So if you kind of think about free cash flow, you certainly should think of it in the $60 plus sort of range and then of course, you've got Uganda to add on, on top. Another thing I've updated on the slide here just for your information is the rule of thumb, whereby with increased level of production for this year, the rule of thumb is more like 125 million on average versus a $5 increase. So really, we have a great set of assets producing some different free cash flow certainly, year-on-year at current prices gives us operational and financial flexibility that we're looking for and provides us now for the choices around the capital allocation framework all across the 3 boxes in the language I've used before, and we're certainly now a self-funding E&P company. So the last slide for me before I summarize is, this is a diagram that you'll be familiar with. It's just a reminder how we're allocating our capital right across the business. Our priorities remain the same, continue to delever, investing in our business and of course, shareholder returns. Our job is to appropriately allocate and optimize that across all 3 categories. In terms of the deleveraging on the debt and gearing, in short, the balance sheet is in a much stronger place than a year ago and even more so than two years ago. We're now, as Paul said, within our 1x to 2x range that we set out at the Capital Markets. We will continue to drive down debt, certainly below $2 billion and gearing towards the 1x, and we can see from the free cash flow numbers I laid out in the slide previously, we can continue to make significant progress on this in 2019. We are self-funding and of course, we're going to continue to reduce the level of debt. In the middle in -- on investing our business, we do have strict criteria for how we allocate our capital between opportunities. The good news is we have a great set of opportunities, so we'll be effectively managing our CapEx, and we also have a huge amount of opportunity that are competing for that capital. So again, it's a good place to be from an asset point of view. And finally, on shareholder returns. As Paul said at the Capital Markets, we laid out a capital returns policy. This was a very important landmark for the Company. It reflects the huge amount of progress that the Company's made and that we've made over the last few years. Of course, the signal is the continued confidence that we have in our financial discipline. It underscores the quality of our assets to be able to deliver growth and of course, this is complemented or underlined by the decision of the board, which was announced today to pay a final dividend for 2018 of $0.048 per share, approximately $67 million. So I'd like to, in summary, just before I hand over to Angus, say just a few final things. Obviously, we're now in a position where we're sustainably year to year. We're generating substantial free cash flow. We're now able to allocate our capital appropriately and efficiently over all three areas, as I would say, a box 1 to box 3. We're in a much more solid and robust financial position, and we've created a solid platform for growth. We have a great pool of assets, so the choices for investment are really strong, and Angus is going to talk a little bit about that. And then finally, but not least, we're now in a great place to be able to pay a dividend sustainably and of course, that starts with the 2018 dividend that we announced today. So with that, I will now hand over to Angus.

Angus McCoss: Good morning, everybody. Thank you, Les. So you remember at our recent Capital Markets Day that I shared with you that I'm now responsible for driving our exploration and subsurface capabilities across our three businesses and this morning, I'm going to talk to you about our strong organic investment opportunities to grow our balanced EP business. So we're maximizing revenues from our West African production business. We're delivering value growth from the oil that we've discovered in East Africa and through our new ventures, we aim to find new oil with a business mindset. So let's look first at our West African business, where we're maximizing production for revenues. We're ramping up production to around 100,000 barrels a day in 2019. And by investing $250 million to $400 million in high-return production opportunities, we're delivering $1.2 billion to $1.7 billion EBITDA at $50 to $70 per barrel. We've got multiple infill near-field and exploration opportunities in our West African portfolio to sustain and grow this production, and we're delivering this at low cost, at $10 OpEx per barrel on average and $7 per barrel in Ghana. And we see significant scope for just in time maturation of resources to reserves, and we make sure that our oilfields feed stocks are steadily brought forward for production economically, just in time, without putting too much CapEx and steel in the ground before it's needed. Looking at our production operations across West Africa. In Ghana, we tied in four new wells in 2018, and these wells are meeting, even exceeding our expectations. Supporting our forecast of around 180,000 barrels a day gross production from Ghana this year, we're targeting seven new infill wells, and we're working with a significant resource and reserves base, with only 25% of it produced. So our Ghana fields, Jubilee and TEN, are still very much in their early life as we laid out in our Capital Markets Day. In TEN, for example, the 2C, represents a 55% increase over the remaining 2P. You heard Paul and Les talk of capital efficiencies in Ghana, enabling capital reprioritization to our West African nonoperated business, and that resulted in producing 21,000 barrels a day from our nonoperated portfolio in 2018, and in 2019, we're expecting around 23,000 barrels of oil per day. And factoring in small license transactions, we're now stretching ourselves to achieve 25,000 barrels a day in the longer term from this portfolio, and by adding 35 million barrels oil equivalent, we've boosted our 2P and 2C by 70% and with 160% 2P reserves replacement in 2018. I'd also like to highlight a strong result from the beginning of this year. In Gabon, the New Simba oilfield was quickly brought onstream, flowing at 9,000 barrels a day, far exceeding expectations. So this involved a simple tieback in shallow water with rapid payback giving a high return on capital. And as Les mentioned earlier, this is an effective reallocation of capital from efficiencies gained in Ghana. Turning now to East Africa, where we are developing our material oil discoveries in Kenya and Uganda. We've landed our volumes and exceeded the minimum commercial field sizes, so it's now time to develop and monetize. And that said, there's plenty more oil in these basins for later for the infrastructure-led incremental developments just like we're doing in -- at Gabon today. On Uganda, you heard from Paul that principles have been agreed with the government on CGT and completion of the farm-down is to follow. The FEED and Upstream ESIA is also complete, and the joint venture is targeting FID in Uganda mid-2019. In Kenya, progress too. The early oil pilot scheme is achieving its societal and technical objectives, and the foundation stage is clearly defined. Following the injection and production test, we now know how and where we're going to optimally drill and locate these production wells for the future, and how we're going to lay out the pads in the field infrastructure. So that's all well established and well understood now, and we're moving forward. We're, meanwhile, working on finalizing key agreements and key solutions to target FID at the end of the year. Taking the two developments together and the farm-downs, you see we're expected to ramp up production again from 100,000 barrels a day to 150,000 barrels a day during the 2020s. Our third business, New Ventures, aims to find new oil to organically replenish our inventories. We're executing a selective and business-focused exploration programming, having reset the portfolio to lower oil prices and cutting out place that required complex high-cost wells. The program is multi-year, and we aim to drill three to five high-impact wells per year within a budget of about $150 million. And farm-outs continued to leverage that investment to give us a bigger bang for our buck. Now our number one priority campaign is in the Guyana hotspot, and we'll be drilling three wells there this year, and more on that in my next slide. And we have highly ranked campaigns in Suriname and Côte d’Ivoire and exciting new positions lined up in Comoros and in Peru, and we're evaluating our prospects in the other select countries. And in support of production and development, we're also looking at exploration opportunities in our other two African businesses. I'd like to just pick out one of these exploration campaigns to keep an eye on as we go forward. In enabling our Ghana positioning in Côte d'Ivoire, we've got a strategic swath of acreage along the entire coastal margin of a proven and prolific oil basin. And this year, we look to extend our airborne service, and we'll acquire a 2D seismic survey in preparation for probable drilling in late 2020, early '21. And finally, our exploration campaign in Guyana has been a decade in the making, and it's now time to drill. We're very well-positioned in this industry hotspot. Our acreage covers the terraced continental slope. Our updip of the Liza discoveries, which derisks the Cretaceous turbidite plays there, and the recent Hammerhead discovery derisks our tertiary turbidite plays. In Orinduik, we will drill two operated wells this year at 60% equity. The first, we'll drill the Jethro prospect in a tertiary play like at Hammerhead. That will start mid-year. We're targeting over 100 million barrels there and deploying a drill ship in 1,350 meters of water at a net cost of about $28 million. And success at Jethro would lead to material follow-on in the Jethro area. The second well in Orinduik has been selected from a really rich prospect portfolio, and we'll keep you posted as the plans firm up. Looking at Kanuku, our nonoperated licensing in Ghana where we have a 37.5% interest, an exploration well will spud there in Q3 this year, targeting a 200 million barrel Carapa prospect. And now Carapa tests the Cretaceous feeder channel systems that deposited the Liza-type reservoirs. It will be drilled using a jack up. It's only in 70 meters of water, and the net well cost is expected to be around $20 million. So looking at the whole program, after applying our full geophysical and geological capabilities, these wildcats are the 1-in-4 to 1-in-5 chance of success, and we work now to continue to prepare to drill these very exciting wells. So in recap. I talked about our strong organic investment opportunities to grow our balanced E&P business. We're maximizing revenues from our West African production business. We're delivering value growth from the oil that we've discovered in East Africa. And through our new ventures with a business mindset, we aim to find new oil. And with that, I'd like to hand back to Paul for closing remarks.

Paul McDade: Thanks, Angus. So just a few thoughts to wrap up. I mean, if you look at 2019 kind of a year ahead, what to look forward to in terms of maintaining the progress of Tullow. Again, continue to focus on cost and capital efficiency and importantly, cash generation. But also, as Angus has just been saying, in terms of new business, really the Guyana campaigns, they kind of stand out in terms of potential for significant growth within the Company, however, no matter what happens in Guyana. This is an engineer talking, not an explorer, we need to also make sure the whole business is actually delivering growth underneath and not just relying on exploration campaigns such as Guyana. So -- which I think, as Angus has highlighted, we're in good shape. We got growth in our underlying production, and we're making good progress on East Africa. We have increased production this year, we're estimating about 10% up on 100,000 barrels a day and that's as Angus -- Les has shown, flowing through to the free cash flow. And in East Africa, we're progressing. We will grow to the kind of 150,000 barrels a day or beyond, so a good strong year ahead. However, whilst -- I think 2018 was a pivotal year, 2019 looks like another strong year for Tullow. My focus is much more on kind of medium to longer term. We set out a clear vision for the Company at the Capital Markets Day. We'll be guided by the 4 pillars that we've put up here again

Operator: [Operator Instructions]

Michael Alsford: It's Michael Alsford from Citi. One question. So I guess I'll have to ask you about the capital gains tax in Uganda. I know you said of some principles have been agreed, but could you talk a little bit more about the mechanics? You mentioned this is going to be a phased approach. And whether the comment that Les made of the initial cash inflow of $200 million is a net number, i.e. after tax or before tax?

Paul McDade: Yes. I think we've said pretty much as much we're going to see in the statement, we really were -- we thought long and hard with this. We've not completed the deal, but I think with the significant progress we made in the meetings in January and having agreed very clear principles about how to close the deal, we thought that was important area of disclosure, so the market understood kind of that we had jumped over that last hurdle and really knows the paperwork -- putting the paperwork in place. In terms of the details of that, I'd love to share with you, but I'm not going to do it today. I will do it as soon as we got the deal closed. We'll be very transparent, and we're going to share as much as we can. There'll be a phased element to it. I think we always said that we could see scenarios where there was the minimum -- very small or 0 CGT on the deal, but actually we always recognized that in any of these transactions, you got to put a deal on the table that's good for all stakeholders, and that includes the country of Uganda. And I think when we push the deal out there on the principles we agreed, I think all stakeholders I think will be pretty comfortable with what we're proposing. I think it's a big step forward. It's good for Tullow, and it's also good for Uganda, and I think that's really important as we progress in that country we're going to stay in for quite some time.

Les Wood: And on the second part of your question. All the numbers are consistent with the numbers that we've used previously, and they don't have any tax adjustment in it.

Sasikanth Chilukuru: It's Sasi from Morgan Stanley. Just had a quick question on your Slide 24 wherein you talked about your long-term production outlook for Ghana. I realized for 2020, you had the option of raising capacity to 200,000 barrels per day, and also in order to keep it flat, you're targeting 2C resources and 3P reserves. Just wondering, the seven wells that you are drilling, will that give you an idea of whether you can raise capacity or how you're targeting 2C resources?

Angus McCoss: Yes. So the program that we executed last year with the four wells and these seven wells that we plan this year aim to just deliver these profiles that you pointed out in Slide 24. We've got to weigh up a number of factors. One is for the allocation of drill time to production wells, allocation of drill time to injection wells, the support production and the allocation of some rig time to converting contingent resources to reserves in order to replace the reserves that we've produced. And we've put together this balanced program that we consider will see us start this profile as forecast. Obviously, what we have to do then is take the technical data that comes in from the performance of the wells that we drill and to match it against these forecast and then respond to that. And the other element as well is the performance of the two FPSOs, and you'll probably have picked up in the past that we expect TEN to be able to perform above its designed capacity, whereas Jubilee has shown itself over the last few years to have been struggling to reach just the same capacity, but the differences nicely offset each other. So it's a combination of facilities, engineering, subsurface work, scheduling, wells, listening to the reservoirs and responding to deliver these curves.

Amy Wong: It's Amy Wong here from UBS. A question on Kenya. Now that you have the EOPS for a few months now, has the well dates have told you any more information about how the fields will behave? And will we get some more information through this year in terms of maybe potentially narrow down some of the production profile and how -- the development plans for that project, please?

Angus McCoss: Yes. So there are real pilot scheme at two objectives, really, of societal and technical, but you're asking about the technical. I think it's achieved both objective actually, the societal and the technical objectives. But on the technical objectives, definitely, we've got the data that were required to design the wells that we were required to drill, and there are hundreds. There will be hundreds of development wells in the long-term across these East African projects. So we have a good understanding of what the wells will look like and also what the well pads spacing looks like. We've been able to drive the well cost in Kenya to close to $2 million, which is a great achievement, and that's through a [indiscernible] piece of subsurface and engineering work, and we've worked out the optimal spacing of these wells. And of course, these technical parameters reads straight through into the CapEx profile, so we've been optimizing the technical parameters in order to reduce the CapEx and improve the capital efficiency of the fields. So we made really good progress on the back of EOPS in Kenya, yes.

Amy Wong: Any chance of narrowing down that production scale number between 60,000 to 100,000 barrels per day?

Angus McCoss: I think you'll certainly see that when we get more granularity around the FID. But those data that have been gathered had been very useful, and we're quite confident -- we're very confident about the production profiles that we're sharing at the moment.

Paul McDade: I think maybe one thing I'd add to that is that we don't expect the Phase I, the foundation phase, to get as immediately up to 100,000 barrels a day. So I think it's probably at, maybe in the 60,000 to 80,000, the range of uncertainty in that initial phase, and then driving up to 100,000 or beyond 100,000 in the follow-up phases.

Rafal Gutaj: It's Rafal Gutaj from Bank of America Merrill Lynch. Just turning to the upside opportunity that you highlight in West Africa without requiring any additional CapEx. Can you give a little bit more color on what that activity is, and whether it's in Ghana or your non-operated assets in West Africa? And the slide I'm referencing is Slide 11. And then just a quick follow-up, point of admin. IFRS 16, is that factored in to your guidance that you provide? Just to double check the Capital Markets Day guidance on leverage and corporate, is it IFRS 16 already?

Les Wood: Yes. On the second one -- I mean, we do a couple of things. One is, clearly we've taken kind of IFRS 16, and when we have the conversation with our banks and with respect to those to the covenant, that kind of all plays into that, so we've made the appropriate adjustments, but we're well within those. And what we do when we're talking to -- what's really important is what we would call our cash leverage, so that's what we do on our net debt and the leverage that we show there. So we've very much taken account of IFRS 16.

Rafal Gutaj: Would you mind just giving some color on the numbers around the impact of IFRS 16 on your 2019?

Les Wood: So that $400 million. You can get the specific investment if you focus on that order in the low 400s.

Angus McCoss: So Raf, were you referring to the upside on that chart?

Rafal Gutaj: Yes. So just interested around the upside opportunity in West Africa. The fact, you know, it doesn't require additional CapEx. I just want to understand a bit more what's behind that.

Angus McCoss: Yes. So it's really the sum of 3 parts. I suppose it's some the organic potential of the fields in Ghana, non-operated, and in terms of operating efficiencies and operating upside. In addition to that, this work going on in the subsurface to target undeveloped resource potential, near field potential in these assets, both in Ghana and in the non-operated space. And we also take a risk view on the exploration potential and exploration upside and how that might contribute in the longer term.

Paul McDade: A good example that Angus highlighted was that, Simba field that came on stream came on a couple of those mostly higher than net, higher than we expected. That would be a kind of no additional CapEx upside we'd be rolling to.

Ilkin Karimli: Ilkin Karimli from Berenberg. Just quickly on the capital allocation policies. So hopefully, with the free cash flow to be generated this year and with Uganda proceeds, you'll be well within that -- well, down that gearing range that you specified. So in terms of capital allocation going forward, how do you think about M&A and potential increase for shareholder returns? Any parts of the portfolio that you would like to strengthen, be it with new exploration licenses or buying into producing assets and doing what, for example, Kosmos did with Equatorial Guinea? And on shareholder returns, if you were to increase -- and are we talking about an increase of the dividend or maybe buybacks to address the rights issue that you did in 2017?

Paul McDade: Maybe just on the M&A. So I think when we set off with the new exec team back in '17, one thing I did highlight was the fact that Tullow has a good strong tradition of M&A. In fact, actually, from probably 2000 to 2001, and I joined the Company through 2007, most of the growth came through M&A. We then had a very strong period of growth through exploration, and one of my ambitions taken over was actually to use both skills to actually grow the Company organic, and that's what we're doing. You see today we're trying to drive and drive the existing organic assets, whether it's the West African production or East African developments, Angus talked about the exploration growth that we potentially see ahead of us. And we've put in place a new M&A team, and their [rhema] is to go out there and have a look at what is out there in Sub-Saharan Africa, and is there anything that could compete for capital against what we're spending capital on internally. And my whole view is that, they are not incentivized to get out there and do deals. They are incentivized to get out there and understand the marketplace and see what's there, and if there are good deals to do, then we'll bring them to the board and we'll think about doing them. If there is nothing that competes with what we've got, then we'll be very comfortable to carry on, on an organic base. But I don't -- you shouldn't not do M&A because you're not looking. You shouldn't not do it because you might go and have a look and not find anything that competes for your organic assets. So I think that's very much how we think about M&A, and we are focused on it, and we're doing quite a lot work in the background, but we're not in a hurry. So that's kind of makes you join. On the shareholder returns, the policy I think was quite clear that we see what is a normal operating range. We can highlight here things that are in $50 to $70 a barrel. We feel we're working the Company to make sure we're delivering cash flow at $50, so you'd see that's what we're focused on in the downside. We're obviously, as Les said, we'll reverse them to $40 in terms of breakevens. And we don't see big spikes in oil price. So as far as our $100 million in terms of return, it's thinking about that range. If we're up at the upper end of that range, I'm sure myself and the board will be sitting and discussing, do we stick to the minimum of $100 or do we increase it? And we certainly left ourselves flexibility about how we would return capital to shareholders. We wouldn't tie around, so we'll see how that journey takes us, but I think the important thing is we've started it. Today, it's a minimum of $100. And with favorable oil prices, then maybe we can look at strengthening it.

Chris Wheaton: Chris Wheaton from Stifel. One question in two parts, if I may. First, Les, can I just come back to the IFRS 16 impact? That sounds like it's a 0.2, 0.3 times increase in your net debt-to-EBITDA number on a sort of reported basis. Is that right? And secondly, a question for Angus, and I never thought I'd ask this. Guyana, one in four, one in five chance of success, why so low if you've got 5 billion barrels found outboard, you know there's all inboard. I never thought I'd ask you with that question.

Les Wood: So in the first part to your question, it's more like a 0.1 turn. Like I said, just to repeat as well within the covenant that we've agreed with our banks, so there's kind of no concern there.

Angus McCoss: Chris, on -- you might remember previous occasions I've guided, wildcats were typically 15% chance of success. So I'm actually upgrading my guidance into one in five, 20%, or one in four, 25%, so we do actually feel reasonably confident from a frontier exploration perspective, but these are still exploration wells. But you're right, the positive results that we've had outboard of us in Guyana and the Stabroek license definitely have a good read through the date. The Liza discoveries derisk the Cretaceous plays in our licenses, and the Hammerhead result, particularly interesting, derisks the tertiary plays, and the first well that we drill will be Jethro and that will be a tertiary play and a very similar prospect to the Hammerhead prospect.

Alwyn Thomas: It's Alwyn Thomas here from Exane BNP Paribas. I wanted to come back to Jubilee and TEN in Ghana and just ask a little bit about how the subsurface is performing currently. What is TEN currently producing at? And I guess the maintenance schedule for the Jubilee and TEN for this year and next year and where production is going to be?

Angus McCoss: So what we're trying to do is obviously get good production up to 100,000 barrels a day, with a lion's share of that coming from Ghana. And the subsurface generally, in TEN and Jubilee, is meeting, it's not slightly exceeding our expectations. We're getting positive feelings from the work that we're doing in the subsurface in Ghana, and we've been applying advanced technologies like Ji-Fi and 4D seismic, which has allowed us to target the reservoirs and with some very precision drilling with deviated wells, so being able to intersect these reservoirs very precisely. It's almost like keyhole surgery that we're doing particularly in TEN. In Jubilee, it's somewhat easier. It's a much bigger target. The Jubilee sands continue to give us good results. I'm getting good performance from these wells. You're looking at wells that are coming in at 15,000 to 20,000 barrels a day, and if they're probably located and completed, and that's what we've been able to do. I mean, the general feel for the subsurface in Ghana is positive, and these fields are young. They're only 1/4 through their life in aggregate. So a lot more to come from Ghana.

Thomas Martin: Thomas Martin at Numis. Not on the details of what your Uganda agreement or potentially agreement might contain, but can you talk about what the process is to actually get that agreement by the summertime? How many trips to Uganda have you got in your calendar at the moment between now and then, Paul?

Paul McDade: In terms of the agreement on the deal?

Thomas Martin: Yes.

Paul McDade: Yes. As fully as my hope would be that we'd have it before the summertime, but I think pretty much we've agreed the principles and as you know with these deals, it's then working with the regulatory authorities, in this case, the URA, Ugandan Revenue Authority, to put all that in paper and make sure it's kind of within law, and that is just a matter of working our way through that. So it's kind of down to the efficiency of the parties putting that together and passing paperwork around and getting the whole button down. Yes, so there's not a whole -- there's not much more to it than that. The big step was getting the principles agreed.

Stephane Foucaud: It's Stephane Foucaud from GMP FirstEnergy. I've got two questions. The first one is around oil price assumption. So you talked about this $50, $70 range you're looking at. And looking a bit to longer term, and at the annual report, I think the content of the auditors quite detail expectation being used for impairments. I think we start $66 and we go to $75, and it's escalated 2% a year. Is that sort of figure representative on what you use to -- the reasonable data you used to asset reserve? And is it also what you have in your mind when you assess M&A investment decision and so forth? I'm particularly not concerned to think about the longer term about how you're thinking. And as a second question, from Kenya. With $2 million per well, how are you looking at CapEx expectation on that field with that sort of well cost?

Les Wood: Yes. So the oil prices given in here are purely for impairment purposes. But as you might expect, to the first part of your question on reserves or to the way we do it in Tullow is that we actually -- they do all the detailed subsurface work, and economic models are available, but we determine what the cutoffs are, PRNs, what we're changing over the course of the year in that regard, but that's how it works today. And as you might expect, for investment, we actually consider a range of scenarios, so kind of look at both the downside because we want it to be economic to the downside, also a more reasonable range and what's an upside. So I won't get into the details of what those ranges might be, but that's how we think about it, both the downside most likely if you like, and then an upside case.

Paul McDade: I think maybe to add to what Les was saying. If you think about some of the investments and see like a bond per year, drilling a well and you're getting payback in 6 months, you're thinking around oil price scenarios for that are quite different investment. Our Uganda project is multibillion dollars and over the next 15, 20 years, so it's kind of appropriate to use the right price sensitivities for the right projects. So yes, that's going to be how we think about it.

Stephane Foucaud: I was also thinking about the $75 number in that report, whether that's something that you're using also for acquisition as we talk about M&A.

Paul McDade: I think on the M&A side, I mean, our -- it wouldn't be -- I think -- what I think about it is just the same as investment. I mean, what we do, we got great assets that we're investing capital into, and our M&A team are tasked with looking outside to see, are there any other deals out there that could compete with what we've got in case that if they came in to our business, actually, they could have capital allocated to them. There's no point going buying something that's actually worse than what you've got and then actually, you prefer to put the capital into organic. We got a lot of assets that can absorb capital and deliver strong free cash flow. I think it's whether we can find other things that can enhance the broad portfolio and broaden out and grow the value of the Company. It's kind of -- for me, it's all going to value. Can you grow the value of the Company, not the scale.

Angus McCoss: So on the CapEx in -- this is our Lokichar project in Kenya. So we're looking at -- in the foundation stage, we're looking at a 60,000 to 80,000 barrel a day central processing facility and a pipeline to land on. And you're looking probably at about 200 to 300 wells at $2 million a pop. So the total CapEx for the whole foundation stage is about $3 billion, and the wells will be about $0.5 billion of that.

Stephane Foucaud: That doesn't really change?

Angus McCoss: No. Correct, yes.

James Thompson: It's James Thompson from JPMorgan. Just a couple of questions, if I may. This year could be a very significant year for continued resources to reserves if these FIDs do go to plan from here. Just wondering if you could perhaps give us a sense of the reserves booking you're expecting for Uganda on the basis of this sort of just in time process that you have at this point in time? And then just secondly, in terms of the Guyana rig contracting strategy, are you going forward just two firm wells and then sort of step away and see where you're at? Or should we expect you'd have some options in there in case things go right and we could actually see a bit of an acceleration of the program?

Angus McCoss: Okay. So James, if you look at our 2C resources in Kenya, 560 million barrels and our 2C in Uganda, 1.7 billion barrels. Then if you look at the Phase I in Kenya, you're looking at about 220 million 2C for the foundation stage, and in Uganda, about 1.2 billion barrels, and you net those out to our equity. So in Kenya, you go from 220 million foundation stage to about 110 million net, so that's a 50% equity position in Kenya. And in Uganda, your 1.2 billion at 10% is 120 million barrels. So Kenya, 110 million, Uganda, 120 million. So 220 million or up to 220 million would be -- what we'll be targeting trying to convert from resources to reserves with the Kenya conversion happening at the FID in '19 and the Uganda conversion happening in the FID middle of 2019. So if you look at our current reserves, there are 279 million, 280 million barrels oil equivalent. So you add the 230 million to that, and you're getting over 500 million barrels of reserves, which is about a decade of production, and -- but our continued resources obviously, will come down as we convert them to reserves, yes?

James Thompson: And just in terms of the Guyana contracting strategy?

Angus McCoss: So -- yes, we're in advanced stage of the contracting for the drilling of two operated wells in Guyana. We're currently reminded to take a break in the program because we will have three well results at that juncture. We'll have the Carapa nonoperated well result and two operated well results. It was good exploration practice to take a breather at that point and look at the results, analyze the results. But I can say that actually, we are currently doing what-if scenarios. We're doing how would we appraise these prospects if they are discoveries and on -- at what pace would we appraise them and seek to monetize them, and the leaning and the team there is to monetize correctly, to get after this. So we are on -- we are minded to get after this opportunity and monetize quickly.

Job Langbroek: Job Langbroek from Davy. A question for Angus. Just to follow-on on the potential, on the exploration side in Ghana. I think the results allude to participation in Ghana's maiden licensing round. I'm just wondering whether what you're chasing is more of the same, the Jubilees or TEN-type plays, or whether it will be something in time we can expect something very different maybe in the deep route board?

Angus McCoss: So yes, we have prequalified for that range. Obviously, there are synergies, and we understand the subsurface on the operating environment, so it's an attractive opportunity for us at the moment. We are going to leverage what we know, so we will be looking at deepwater turbidite systems as the main play, and that is I'm sure the industry will recognize that is the main play in that basin. But we will be mindful to apply our conditionality of not getting involved with complex wells. We've seen that, that can lead to cost overruns, so that will preclude us from some of the ultradeep positions on the complex drilling environments.

Chris Perry: Could we see if we have any questions on the conference call, please? A couple more questions in the room.

Colin Smith: It's Colin Smith from Panmure Gordon. Two for me. Just quickly on Uganda. I mean, it looks as though FID has slipped a bit, and I just wonder if you think realistic operators guidance for start of this 2022, or whether that slipped a year? And then secondly, as I understood it, offshore Guyana, the big price was in the Cretaceous rather than the tertiary. So I'm interested on why you would choose to drill Jethro first as a tertiary prospect in your operated block? And perhaps if you could just expand a little bit on what you're hoping to prove with that well.

Paul McDade: So I'll just take the Uganda one and Angus will take Guyana. I mean, I think we've been clear that the time from FID to first oil is somewhere between 3 to 3.5 years for Uganda given the scale of the project. So it's a more of arithmetic really, and if we get it sanctioned at the middle of the year, then do the maths, and we'll be delivering towards the end of 2022. Clearly, if this slips much further, then the first oil will slip into '23, but the time from FID to first oil is unlikely to change very much in that range of 3 to 3.5 years.

Angus McCoss: So Colin, you're right, that the outward plays or kind of the Cretaceous so Liza is a Cretaceous play, and you're asking, so why are we not drilling at Cretaceous, an updip play. Well, we are actually at Carapa, the nonoperated well in the Kunuku license will target our Cretaceous reservoir, so we'll have that result, and that well will spud in Q3. Our operated well, the first one, we haven't announced what the second one will be yet, but the first one will be tertiary. Why are we interested in a tertiary? Because a Hammerhead play is a tertiary play, and we're picking up signals. That was a very successful result for the outboard venture, and we were able to identify Hammerhead predrill. We predicted they would have success, and the same technical parameters that we apply to come up with that judgment, we're applying at Jethro, and we see Jethro and Hammerhead has been pretty similar in terms of geology and geophysics.

James Hosie: It's James Hosie from Barclays. Just, Paul, on your comments on sustainability. I was just wondering, is your next wave of projects in East Africa? How did they compare in carbon intensity to your current production base in West Africa?

Paul McDade: I mean, I think in terms of carbon intensity, it's important that we get into the design phase. I mean that's something when -- if you look at say, Jubilee versus TEN, then actually, the kind of carbon impact of TEN, both from a flaring venting point of view is much less or significantly less than Jubilee. Why? Because we had full control of the TEN design. And actually, we designed that into the FEED and then the ultimate execution of the FPSO. So for example, on TEN, we have -- if not 0, almost zero venting, and the flare we just enacted the final design change, and we've got -- I see in [Indiscernible] zero flare, you can have -- or actually have zero flare because from a safety point of view, you have to have a flare left in case you have a blowdown of the system, so it's got to ignite, but it's as close to zero as you can possibly get whereas in Jubilee, we're not flaring very much, but we're flaring a couple of million probably scups a day on a daily basis. So I think what we're looking at in East Africa is, how do you design into the facilities? Certainly, in facilities we have control of to minimize any venting or flaring or carbon impact. So I just -- we -- in the whole sustainability agenda, I think we've been very focused on shared perspective. We've been very focused on responsible operations, I would say. So from an environmental perspective, we are very careful. Angus talked a lot about the size and the effort we went to up until Canada to protect the landscape and the importance of that terrain. We went to incredible stands what can [Indiscernible] up there, and we're very aware of that. I think we're just kind of pushing it even further and thinking about the whole balance and even to the point of, should we be looking at carbon offset and what else we do across the business. So it's just we're kind of taking what we do, I think, quite well and actually, thinking about stepping up, and that's the advantage of having a longer-term view because if we set out where we want to be in kind of 10 years, then it's about taking little steps now to get there, yes?

James Hosie: So just a quick follow-up. A quick question on Hammerhead. Are there any negotiations going -- ongoing with Exxon regarding a potential unitization? Are you looking to drill a well on your side of the border? Or can you negotiate something without even drilling there?

Angus McCoss: Yes. I mean the short answer is there's no commercial discussion going on between the 2 ventures about this -- the Hammerhead, the extension into our license. I mean, I think that, technically, it's viewed all around by industry as pretty evident that the Hammerhead discovery does extend, to some extent, into our license, but we've put that off for another day. We're going to focus on making our own discovery.

Paul McDade: Okay. Thank you very much, everybody, for all of your questions. I think the execs will be around for a little while longer afterwards for coffee if you want to have a quick chat. And otherwise, any follow-up questions, you know how to get a hold of myself or Nicola in Investor Relations. So thank you very much for your time.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.