Irish Tullow Oil and Texas-based Kosmos Energy would have to spend close to $1 billion as cost to fix problems it is facing at Ghana’s Jubilee oilfields in order to bring production on track to achieve the plateau limit of 120,000 barrels of oil per day, according to analysts at investment bank Tudor Pickering Holt and the Royal Bank of Scotland Group Plc.
The Jubilee oilfields have been facing some problems as far as production of oil is concern.
As forecasted by Tullow in August 2011, oil production from the fields will be between 82,000 to 84,000 barrels a day for the year 2011 but on November 9, 2011 in a statement, the operator revised the output downwards indicating production for 2011 will average 79,000 to 81,000 barrels of oil a day.
The jubilee partners including Tullow, Kosmos, Anadarko has publicly stated that the problems with the oil output is due to some technical issues with some of the wells.
Anadarko for instance told analysts via conference call that “We have seen some greater-than-anticipated drawdown in several of the wells…The problem wasn’t associated with early depletion of the reservoir, but rather with the way wells were completed, Charles Meloy, Anadarko’s senior vice president worldwide operations said, according to a report by Wall Street Journal’s Market Watch November 1, 2011.
On November 10, 2011, Kosmos in an operational update on Ghana stated that “All of the Jubilee Phase 1 wells have been drilled, and current oil production is approximately 80,000 barrels per day. Identified completion issues require one of the producing wells to be sidetracked, as well as downhole remediation on certain other wells.”
Once these completion issues have been resolved, Kosmos said production is expected to continue ramping up toward the FPSO facility capacity adding the J-7 production well is currently being sidetracked, with completion expected at the beginning of 2012.
Bloomberg News on November 9, 2011 quoted Tullow’s Chief Financial Officer Ian Springett as saying “While there are some temporary technical issues, in terms of production levels of 120,000 barrels a day and recoverable reserves there is no change.”
According to the report, Mr Ian Springett declined to give an estimate of costs to fix the problem, saying Tullow may need to drill more wells to recover reserves.
But an analyst at Tullow’s in-house broker – the Royal Bank of Scotland Group Plc, Phil Corbett told Bloomberg that the work may cost about $500 million.
Investment bank Tudor Pickering Holt said in a research note that Kosmos will feel the biggest impact of all the Jubilee partners from the production issues.
“We estimate that Kosmos will outspend cash flow by $180 million in 2H11 and $420 million in 2012,” Upstream news publication quoted Tudor Pickering as saying November 10, 2011.
“The combination of completion failures, productivity issues, downhole remediation, and sidetracks being planned all point to a completion design issue,” the bank added indicating that this is not the first delay in a
production ramp up at Jubilee.
While this still leaves “plenty of headroom” with about $1 billion of liquidity at the end of the first half of 2011, Kosmos “may need further financing” in 2013, the Houston-based bank said.
Upstream further cited Tudor Pickering stating that the original Phase 1 ramp up was delayed due to problems with the blowout preventer and water-injection commissioning issues.
It adds, a subsequent completion failure at the J-1 well cost some $130 million to fix.
Anadarko has indicated that it will increase its capital expenditures next year (2012) for all its global operations up to $6.3 billion.
The Jubilee partners have missed the entire plateau target they forecasted for 2011. One was to the 120,000 barrels per day production in July 2011, October 2011 and December 2011 which they said cannot be met pushing it to 2012.
Even if the plateau if achieved, Dr. Toni Aubynn, former Head of Tullow Ghana Corporate Affairs told ghanabusinessnews.com on the sidelines at a meeting in Accra May 2011 organized by the Rotaract Club of Adentan that
“After oil production reaches its peak of 120,000 barrels per day, it will slide down but the new discoveries at the Jubilee Phase 1A will the keep the level of production.”
The World Bank estimates that Ghana will enjoy the plateau from Phase 1 for five years from mid-2011 to mid-2016 and decline thereafter with field life of 20 years.
But the mid-2011 estimates has been missed.