Tullow Oil (LSE:TLW) Q2 2026 Earnings Call

0:01 Welcome everyone to Tullow's 2026 half-year results presentation. I'm Ian Perks, Tullow's CEO, and I have now been in the role for 12 months. I'm joined today by our CFO, Richard Miller. This morning, Richard and I will take you through various operational, financial and strategic updates across all areas of the business since the start of the year. Back in April, I highlighted the progress we had made in building a stable foundation for improved performance and today I am pleased to show how this foundation is continuing to deliver positive results. Richard will then go through our financials including the refinancing transaction completed in April and free cash flow generation against the backdrop of high oil prices.

0:52 I will then talk about the depth and scale of the opportunities that we have in Ghana and what this means for our business outlook. Starting with operations production performance has been outstanding in the first half of the year and we are now confident of being at the high end of our guidance range by year end. We have added material 2p reserves delivering reserve replacement of around 380%. We've also continued to de-risk the business plan as we firm up future drilling campaigns and projects. The strong operational performance flows through to our financials where we have significantly upgraded free cash flow guidance from between 70 and 175 million to between 170 and 250 million dollars in April this year we completed a comprehensive refinancing transaction and we continue to optimize our cost base including the important purchase of the 10 FPSO said for early next year which will remove the annual lease cost.

2:05 Data from the recent 4D seismic will be further supported by the OVN survey data and is helping us shape future drilling campaigns and unlock significant growth potential in and around the Jubilee and TEN fields. Our alignment with the government of Ghana remains strong underlined by the extension of the petroleum agreements and the agreed gas payment security mechanism. We also continue to work closely with the government of Ghana to resolve the outstanding tax arbitrations. We will now take you through this in a bit more detail and I will start with our production performance before handing over to Richard to take you through the financial update.

2:53 This slide explains the Jubilee and TEN oil production story for the first half of 26. excluding gas and espoir the single largest contributor is the performance of the new wells all of which have come on stream in line with or ahead of expectations in terms of schedule and initial production rates optimization of existing wells through careful reservoir management has led to lower well downtime and reduced natural decline rates Dual riser operation is reducing back out of existing wells where new wells are brought on screen, which has had a further positive production impact. Finally, the performance of our FBSOs remains very high, with combined uptime of over 99% across Jubilee and TEN in the first half of the year.

3:49 Not only does this strong performance give us confidence for the remainder of 2026, We believe it is to be largely sustainable over the longer term. The seismic data is informing our decision making. The facilities are running reliably due to specific actions we have taken and optimization work continues to have a positive impact as our understanding of the reservoir improves. So now let me take you through this in more detail on the next slide. This slide shows how we have achieved the high production performance for a project delivery mindset which has brought a culture of accountability, high energy and focus on our operations.

4:37 In 2025-26 drilling campaign which delivered seven wells on time and on budget is now complete with the final well a water injector on stream this month. As stated earlier All new wells are in line with or exceeding expectations, both in terms of schedule and initial production rates. The success of the drilling campaign speaks volumes to the benefit realized from accelerating the 4D data processing, which de-risks the campaign one wells. Drilling performance also continues to be top quartile in the industry, which is critical to production performance. and provides confidence for future campaigns.

5:24 During this campaign, quality of our data and geophysical analysis has allowed real-time geosteering to accurately reach our reservoir targets, while reducing risk and increasing production rates by accessing multiple target zones. Water injection remains a key element of reservoir management. In 2025, water injection capacity was increased to 300,000 barrels of water per day. So we have headroom above our target injection rate of 230,000 barrels of water per day. Despite unexpected downtime in the second quarter causing water injection to be below expectations for the first half of the year, we still remain on target for the full year and this is expected to be at the highest levels ever achieved in terms of water injection into Jubilee.

6:20 Efficiency is also key, and we are optimizing injection allocation and distribution towards high value producers to maximize oil production and enhance recovery. Furthermore, we are improving power reliability through direct remote monitoring and a sparing strategy, which includes the use of gas turbine generators from the 10 FPSO with Jubilee. In the first half of 2026, we have seen fewer production related trips compared to the same period in 2025 and the Jubilee FPSO maintenance shutdown conducted last year is a significant factor here. The shutdown was used to address known vulnerabilities such as instrument reliability which has improved the overall facility uptime.

7:11 The eastern side of Jubilee experienced significant production instabilities during 2025 which are effectively addressed through riser-based gas lift. The subsequent start-up of J75, J76 and J77 further enhanced production stability and supported sustained field performance. On the western side of the field with strong production we have been able to move from single riser operation to dual riser operation to reduce back pressure on wells. For optimising well configurations we have been able to maintain this for much of the year and hope to continue until riser based gas lift is installed on the western side of the field in November so before I hand over to Richard to run through our first half financials I want to reiterate that the cultural shift within Tullow and set of targeted actions are delivering meaningful and sustainable production results thank you Ian

8:13 In the first half of 2026, we produced 43,700 barrels of oil equivalent per day, representing a more than 7% increase compared to the first half of 2025. As Ian explained, this outturn was at the top end of expectations and makes us confident in being at the top end of our guidance range of 34,000 to 42,000 barrels of oil equivalent a day for the full year. Our average real life price before hedging was $95 a barrel. and included the highest ever price for a Tullow cargo of approximately $130 a barrel which was delivered in April. So far in the second half of the year we have lifted a further four cargoes and again realised an average price of $95 a barrel.

8:59 That included a cargo repriced at $119 a barrel at the start of this month and we expect to lift a further four cargoes by the end of the year. The outstanding operating performance has translated directly into an increase in operating cash flow, with £222 million in the first half of the year. We expect to deliver an even higher number in the second half, based on a total of 8 cargoes compared to 6 in the first half of the year. Capital expenditure is in line with expectations and guidance for the full year remains £200 million. Decommissioning expenditure for the full year is reduced from $25 million to $15 million due to the deferral of the 10 decommissioning fund contributions.

9:47 Free cash flow in the first half seems low at $4 million, but this is due to $70 million of one-off refinancing costs, capex being awaited for the first half of the year, and the fact that we lifted six cargos in the first half compared to eight forecast in the second half. As previously reported in August, full year free cash flow guidance has been upgraded to $170 to $250 million between an oil price of $70 and $100 a barrel, reflecting the positive production performance, higher oil price realizations and good progress on recovery of Government of Ghana receivables. We have continued to deliver the business and made a $48 million bond repayment in June and expect a further repayment in November.

10:37 We forecast year-end net debt of $1.2 billion inclusive of accrued tech interest on the bonds and clinical notes. I would now like to recap on the comprehensive refinancing transaction we completed in April of this year. refinancing transaction we completed in april strengthens hollow's financial position and provides a stable platform that allows us to pursue value accretive investments and projects which ian will provide more details on shortly we extended the maturity of our senior secured notes to 2028 and the glencore to 2030. We have also agreed a $100 million new money cargo prepayment facility with Glencore to provide the company with a robust liquidity position.

11:27 Our liquidity profile is further strengthened by the lowering of cash interest costs by over $50 million per year through the use of paid-in-kind and pay-if-you-can interest. With enhanced value proposition and more time, Taro is exploring longer-term refinancing options strategic investment or a value maximizing divestment process as a backstop moving to the right of the slide our hedging policy remains unchanged targeting 60% downside protection whilst keeping at least 60% of production fully exposed to higher oil prices we use a mix of puts collars three ways and we sometimes add put spreads to improve strike prices We have not entered into any swaps, and as you can see from the table, through our use of freeways, a portion of the upside giveaway is limited to a $10 a barrel range.

12:24 This approach to hedging ensures we have a robust liquidity position in a low oil price environment that maximizes the exposure to high oil prices. Moving on to the next slide, I would like to reiterate our focus on cost efficiency and our significant oil price upside. The chart on the left-hand side of the slide shows four metrics I've shown previously, where we have made significant progress to optimize and streamline our cost base. Firstly, net cash G&A is 50% lower than two years ago, and we continue to target a run rate of $20 million a year. Operating costs increased in 2025 as a result of the successful planned Jubilee maintenance shutdown and CSV campaign. A huge amount of work has been done to deliver the required maintenance and integrity activity in the most cost effective manner and as Ian has explained this has delivered tangible results already this year including 99% uptime on the Jubilee FBSO.

13:31 We expect further cost reductions following the purchase of the 10 FBSO. We were able to deliver 30% savings on operating and maintenance costs since taking over the Jubilee FBSO. and we're targeting similar results at TEN. We also see a clear opportunity for further savings as we tap into synergies that may be available as a result of operating both TEN and Jubilee. The chart on the right of the slide highlights our updated free cash flow sensitivity for the rest of the year. driven by the strong production we have four cargos left to price in 2026 and with dated Brent again trading at a premium to the front month of Brent futures there is potential for free cash flow to exceed our current guidance every $10 increase above our guided range for the second half of the year would result in more than $20 million incremental cash flow I will now hand back to Ian to look ahead at a refreshed opportunity set.

14:36 Thank you, Richard.

14:38 So in April, I presented the rich opportunity set we have at Jubilee and 10 across three scenarios. A 2P reserves only case, a business plan base case, and an upside case. I'm pleased to report that we are now able to present an improved outlook for each of these three scenarios. We have been actively working to mature projects and future drilling campaigns to add greater certainty and value to the 2P and business plan base case scenarios. In addition, the 4D seismic data has uncovered near field potential in deeper horizons around Jubilee and 10 and this has added material growth opportunities for the business. Looking first at Jubilee, our view of the mid-year 2p reserves position represents a reserves replacement ratio of more than 420%.

15:36 This reflects the impact of the reserves associated with the petroleum agreement extensions, the maturation of the next two Jubilee drilling campaigns and the teak gas development. Following the success of the 25-26 drilling campaign, we are optimistic of the potential of the 27-28 drilling campaign can deliver once underway in the second half of next year. The business plan includes the multi-phase pumps project and a well intervention campaign, both of which provide further opportunities for reserves additions. The multi-phase pumps project continues to progress as it is now in the feed stage. We also have a refreshed and expanded upside opportunity set.

16:25 In addition to future drilling campaigns and reservoir management initiatives, we now include significant near-field and infrastructure-led exploration potential in lower mahogany which can be developed from the existing subsea production system and the Cenomanium which is a deeper theological play below Jubilee. These opportunities can be pursued in a highly disciplined manner. Low cost deepening of future development wells can de-risk the resource space before any material capital is committed for appraisal and subsequent phase development. Certain opportunities will require additional rights and we are already engaged in early discussions with the government of Ghana to securities.

17:15 This is a clear result of the strategy I explained back in April. as we look to convert 2C resources into 2P reserves, de-risk the business plan, and unearth new growth opportunities. So let's now turn to how this strategy and new 4D data has impacted the TEN fields. TEN continues to perform strongly, with our view of more than 170% reserves replacement at the middle of the year. Within the business plan, key near-term maturation opportunities include reserves associated with the petroleum agreement extensions, Ntomi oil infill drilling, a well intervention campaign and a non-associated gas opportunity across Swinoboa and Ntomi.

18:05 Following the FPSO purchase, which improves the economics of TEN, we continue to explore ways to maximise the potential of these fields and the existing infrastructure. As with Jubilee, the deeper Cenomanian play also represents a material longer-term opportunity which can be de-risked in a low-cost manner. I will now turn to the associated value creation potential. In April, we provided value sensitivities to oil price and discount rates across the three scenarios of 2P business plan base case and upside. This slide shows how these cases have evolved and grown in the space of six months.

18:50 Since April, we have increased the Jubilee 2P case through the addition of a further seven wells across campaigns two and three, whilst also incorporating additional 10 drilling opportunities into the business plan. We have significantly refreshed the upside case. Across Jubilee and 10, we now see multiple infrastructure-led exploration opportunities Supported by high quality seismic data and subsurface insights. Collectively, these opportunities can be de-risked in a capital efficient manner, allowing us to maintain the disciplined approach to capital allocation that underpins our strategy. We've applied a single 12% discount rate and a conservative flat real oil price of $70 a barrel.

19:41 compared to audited year-end 2025 2P reserves of $1.2 billion, we see additional value delivered from our view of mid-year and further value from our enhanced business plan. Additionally, our refreshed upside case demonstrates the potential for value to increase to more than $3 billion. So finally, to conclude, this slide summarizes everything you've heard today. We are delivering our strategy and seeing tangible results. The strong foundations laid and renewed operational focus are leading directly to improved and sustainable production performance, reduced costs and cash flow generation.

20:29 We've de-risked our business plan and realised 380% reserves replacement as a result. We're looking forward to further project maturation and getting back to drilling in Ghana in 2027. We've also refreshed our growth potential following a review of the 4D dataset. Near field exploration opportunities exist that could generate material value over and above our business plan. There is of course more work to do before we can realise this which is why it's in the upside case. Nevertheless, we're excited by the opportunity and have a clear set of actions to help de-risk and unlock this value but all stakeholders going forward.

21:14 Thank you. We will now take any questions you may have. Thank you, Ian. As a reminder, if you would like to ask a question, please press star 1 on your keypad. We will take a moment to collect questions. there are no questions in the queue at this time so we will call we'll give it a okay we have a question the first question is from Lydia Rainforest at Bath please go ahead Lydia thanks Matt and good morning team I very much appreciate the update I have two or three questions if that's okay the first one

22:11 Ian can I come to the operational performance it clearly has been extraordinarily strong and I think you talked about a number of the changes that the team have made but what is it that's really driving that is it a change in management is it a change in how you're thinking about the the field I'm just trying to wonder what exactly is that we've gone from fears where they're having problems with the performance to actually extraordinary uptime so just helping you understand that a little bit the second one was on the OBM side and can you just walk us through in a bit more detail what that is actually showing you how different that is to where your seismic has been in the past and kind of just a little bit more detail on that and then Richard if we could and just in terms of the oil price realizations I think you took some of the idea that one of the cargoes was $119 a barrel for this quarter but just that difference between the physical pricing that we're seeing versus what we're seeing on the screen and how you think about that as a CFO in terms of when you're planning things thanks I know that's a lot of questions

23:23 Okay, thanks. So take the first question you asked us on operational performance. Yeah, I think, you know, a lot of it's come down to sort of a greater rigor and focus. I think clearly, as we've consolidated our asset base and focus more on Ghana, I think that's brought more attention to the business there. Very much a sort of a project delivery mindset on operations this year. and then specifically I think what we've seen lot lot stronger well stability the right about base gas lift has helped in the east and will help in the west as well I think a greater focus as I said on power and the reliability of power and the sparing strategy I think water injection you know was a has been a refocus of us we always say you know water injection today is oil production tomorrow and so we're very focused on that creating additional capacity some of the well optimizations been very good I think there's just a more experience in the business and understanding how we match wells across different rises to create better stability and then lastly obviously the drilling performance I think when you're bringing new wells on stream and getting those wells on schedule you know it's very very important and I think our drilling team continues to perform you know outstanding results across the you know compared to industry standards so those

24:57 are the real the real issues I think that have led to better performance in terms of plant availability I think we're realistic to recognize that you know continuing at 99% is probably unrealistic but certainly I think some of the high availability has been down to action so you know we're very pleased with the performance but also we are sort of realistic going forward on that in terms of the seismic so just to be clear the 4D has been processed and reviewed it did have a significant impact on the campaign one wells we actually changed one of the wells out we moved locations and I think the key benefit of the 4D was making sure that we didn't drill a bad well in that program as far as the OBN we're getting the process data in the back end of this year we'll come in next year we think in terms of the firmwells you know we're very confident with the 4D identifying the firm wells in the drilling program next year and the OBN will be very key in terms of our option wells and it's just going to improve the accuracy of the 4D data perhaps provide a little bit more static data as well so we're excited to see what the OBN gives us in addition and your third question I think I'll hand over to Richard thank you

26:27 Yeah, thanks Ian. I mean historically the front month of the forward curve and prices for prompt delivery have been relatively consistent but we've seen some material changes volatility this year so you know the gap increased to about $20 a barrel in sort of April May time and that closed completely over the course of the summer but in the last few weeks that's opened up again to a $20 plus from in terms of the prompt deliveries and in terms of I suppose how that impacts how we sort of think about things from a financial perspective you know will we all of our hedging is based on a um a dated brent price um so you know that's probably one of our our key measures for um for managing the volatility and price um and as we as we sort of i suppose look forwards we've got we're guiding a hundred dollars um a barrel at the top end of our free cash flow range for the year and with you know the front month of the forward curve sitting at 107 and a 20 premium you know there is you know a positive potential to even be above that that top end of the guidance range brilliant thank you all thanks lydia our next question is from james hosey at shore capital go ahead james

28:03 Hi, good morning. I've got a few questions if I may. Firstly, just on the upside scenarios you've presented for Jubilee in 10. I'm just wondering how mature these opportunities are. Are there things you could do as early as next year to get the capital available? Or is there still a lot of work to do high grading and optimising these exploration prospects? Secondly, just maybe an awkward question, but the Ghana tax disputes. Obviously, I think the release today says you expect the tribunal ruling soon on 1. You've increased the provision for these disputes by about 30 million. I'm just wondering if we should be anticipating a meaningful cash outflow over the next 18 months to settle this or can this settlement be nested off against some of the money owed to you by the government?

28:49 Okay, thanks James. In terms of the upside you know I think you know as I mentioned this is upside opportunity is definitely longer term I don't think it's anything we're going to get after in the near term in terms of large capital outlay. the reason why we've always looked at this as an opportunity it's always been on our radar but I think the thing that's made us most excited is the 4D seismic data you know we're seeing bright spots on that so you know from our perspective we've got plenty to keep us occupied in the near term in in Jubilee in 10 and the potential there but I think the exciting thing is you know once Oil plc the expiration cost you know would would typically be a hundred million dollars a well you know to drill in that area we can deepen one of our development wells at a cost of about about 10 million so we've got potential wells in campaigns two or campaign three you know that we can get after and de-risk that in terms of the tax disputes we are we are you know still working with the government as we said we have agreed

30:19 with the government to defer the next arbitration the third one which is the interest arbitration so that was due in September that's been pushed back you know I think that's a signal I think that there is still intent from both parties to try and resolve this amicably and discussions are ongoing in terms of the provision I'll hand over to Richard

30:44 The uplist in the provision is based on where we are with current conversations with the government and where we see the most likely outcome. We still have a material balance of receivables with the government that we would be looking to offset against in any discussion.

31:09 Okay, great. If I just made this one further question, just because you mentioned a longer term debt refinancing solution. Are there any particular operational or financial milestones you want to get past before you embark on a refinancing?

31:24 Yeah, I'll probably hand that over to Richard. I think we've got a sort of a clear timetable in place.

31:29 Yeah, so I think, James, we've sort of, I suppose, as we've set out today, we've largely achieved most of those. so we've had really strong operating performance production's been fantastic free cash flow guidance has been uplifted both on production performance but also the higher raw price environment and we've also seen a material uplift in reserves so the focus now is to look to secure a sort of a longer term refinancing during the second half of this year that's great very clear thank you Thanks James. Our next question is from Stella Cridge at Barclays.

32:14 Go ahead Stella.

32:18 Hi there. Morning everyone. Many thanks for all of the updates. If I could follow with a couple more questions please. So firstly I just wondered if you could talk about how production performance has been in Q3 so far particularly in Jubilee and what you're expecting going into Q4. The second thing I wanted to ask was there have been some fresh reports that Ghana was looking to ask some of the partners in the fields to sell output into Ghana directly to supply local refineries. So I was just wondering if that had been happening so far in the second half of the year. And finally, just in terms of the refinancing, thanks for the details that you just provided. Do you see yourself trying to kind of diversify the capital structure, perhaps bank loans and bonds? Or are you perhaps thinking a little bit more about a refinance bond?

33:04 Any additional thoughts would be really helpful, thanks.

33:10 yeah thanks for those questions so I think I'll hand the last two to Richard in terms of the first one production performance yeah it's continued to be strong in the third quarter as well good availability Jubilee's performing well you know we did bring some those wells on at the back end of the program and you know that's what's given us confidence to say today that we're you know very confident we're going to be at the high end of our production guidance

33:41 On the first question Stella, the government have done a great job with some private capital as well in improving refining capacity within Ghana and we have actually sold the first ever Jubilee cargo to be refined locally in Ghana earlier this year which is a fantastic achievement. and that refinery at Zantau has now become one of the more prolific buyers not just with Tullow but across the partnership and also with Government Crude as well but very much done on a commercial basis obviously an improvement from a freight perspective in terms of underlying costs In terms of how we're sort of thinking about the refinancing I think you know looking at a you know a trader led solution as we have done in the past so working with a trader to support a refinancing probably in the first instance looking to work with banks to put I suppose a more traditional European EMP tax structure in to achieve the lowest possible cost but those that sort of that planning is well underway as we look to execute

35:12 something during the second half of this year that's fantastic many thanks for those additional details thank you Stella that brings our Q&A session to an end thank you very much thank you