The Investment Column: Tullow's Ugandan prospect could swell its value
Edited by Michael Jivkov Published: 31 May 2006
Our view: Hold
Share price: 361.5p (-7p)
With a market value of £2.3bn, Tullow Oil is one of Europe's biggest independent oil and gas explorers. Founded in the mid-1980s by Aidan Heavey, the Irish group was transformed relatively recently by the purchase of several North Sea gas fields from BP.
Last year, Tullow produced 120 million cubic feet of gas from these fields, and thanks to the high price of the commodity it generated a tidy sum of cash. The group's strategy is to use this money to fund a programme of oil exploration in Africa and Asia. Yesterday came good news from a key Tullow investment in Uganda.
Data from the Mputa prospect confirmed that it contained oil, but investors will have to wait until the results of a later study to find out whether it is a commercial resource. If it is, and contains between 250 and 300 million barrels of oil, the construction of an export pipeline will then most probably follow.
Analysts believe Mputa could add as much as 70p a share to Tullow's valuation. The group is well diversified in Africa so even if it disappoints there are plenty of other prospects for it to go for.
Tullow has assets in Namibia, Angola, Gabon, Cote d'Ivoire, Equatorial Guinea and Mauritania. And that is just its African operations. In Asia, the group has fields in Pakistan, India and Bangladesh at various stages of development.
This year is a crucial one for Tullow. It has in place a programme to drill up to 20 wells. These are, of course, high-risk assets and there are no guarantees of success. But the Irish group always has its North Sea gas operations to fall back on. They underpin its valuation and set it apart from many rivals.
Analysts forecast these will generate 45 per cent of output this year along with sales of £340m out of a total £570m. Although Tullow shares have risen by more than 350 per cent over the past two years, they are still worth holding on to.
Australia’s Hardman Resources has high hopes for its Mputa field in Uganda's Block 2 after completing extended wireline logs at its Mputa-2 appraisal well
The logs at the well, which has been completed as a potential future producer, confirmed that the upper reservoir sands intersected at Mputa-1 and Waraga-1 are laterally extensive despite being water wet at the Mputa-2 location.
Pressure data indicated that the Mputa field has a hydrocarbon column of about 100 metres though the Mputa and Waraga structures do not appear to have a common oil lef.
Hardman added that this and hitting the target sands over 100 metres shallower than expected were both positive to the interpretation of the Mputa field.
The company also noted that oil samples recovered from the lower reservoir zone in Mputa-2 could be correlated to similar oil bearing zones in the other two wells.
Results from the three discovery wells and the testing programme, which will begin with flow testing of Waraga-1 in mid-June, will be integrated to define the reserves estimates, commerciality and potential development plans.
Hardman chief executive Simon Potter added: “We have identified other follow-on reservoir targets for exploration and these will be considered for the planned exploration and appraisal drilling programme later in 2006.
Hardman and Tullow Oil are equal partners in Block 2.
30 May 2006 03:43 GMT | last updated: 30 May 2006 04:07 GMT
