From The Times March 1, 2010Monday mainifesto: From...

From The Times March 1, 2010

Monday mainifesto: From streetfighter to big hitter
Aidan Heavey has gone from Aer Lingus accountant to oil explorer to Chiswick-based oil baron as Tullow has advanced on several fronts in East and West Africa

Robin Pagnamenta

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The world, the banker said, is full of oilfields big enough to make you rich but too small to prick the interest of the industry big boys. Aidan Heavey listened intently to that advice and now, more than 20 years later, he is discovering just how rich.

A string of huge oil discoveries in Uganda and Ghana have propelled Tullow Oil, the Irishmans company, virtually overnight from a mid-sized independent oil explorer into the top flight of the FTSE 100. In the space of a year Tullows market capitalisation has more than doubled to 10.4 billion, making it Britains 34th-largest company bigger than Rolls-Royce and twice the size of Marks & Spencer.

Now a deal with Total of France and the Chinese state oil producer CNOOC to jointly develop Tullows Uganda discoveries is expected to land the group a $2.5 billion windfall.

All this for a business set up on a whim in 1985 by a former Aer Lingus accountant with no experience of the oil industry one that had to scrap as it hunted for gas in 1980s Senegal. Those were different days, the industry was in total recession. It was survival of the fittest. And we were the best streetfighters around, Mr Heavey said.

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The we in that sentence gives a clue to how Tullow managed to succeed while others failed: When I started out in the industry I knew nothing about oil, the 56-year-old from Castelrea, Co Roscommon, deep in the heart of the Republic of Ireland, said. Which was a good thing. I had to find the very best geologists, the best drillers around. When you are spending $100 million on a well you dont want a bunch of idiots telling you where to drill.

The company grew. In 2004, we employed 80 people and had a market value of 330 million. The groups value has expanded thirtyfold since then. With more than six million shares worth 12 each, Mr Heaveys own stake in Tullow, which is active in 17 countries across the continent, is worth 72 million.

Tullows chief executive has a reputation as a steely negotiator and has cut some shrewd deals along the way. Two, in particular, stand out. In 2000 Tullow snapped up a string of producing fields in the North Sea from BP for 200 million, a move that was greeted with widespread scepticism at the time. Tullow, which took on big debts to pull it off, was viewed as far too small to swallow the fields but Mr Heavey quickly proved his critics wrong.

We went from having a turnover of 5 million to 100 million in one year, he said. The BP deal also allowed us to bring a lot more good people into the business.

Yet it was a second deal in 2004, when Mr Heavey paid 345 million to buy an outfit called Energy Africa, that marked the real turning point for Tullow. It was an absolutely perfect fit for us, he said. As well as a strong team of geologists, Energy Africa held drilling rights to acreage in an obscure part of Uganda, a country largely overlooked by the oil industry since the 1970s. Back then Shell had drilled a few wells in the remote Lake Albert region, close to the border with the Democratic Republic of Congo (then Zaire), and had found traces of oil but it pulled out when world prices fell and later Idi Amins regime triggered the countrys collapse.

Tullows return to Lake Albert with a drilling rig in 2005 has become the stuff of oil industry legend. We drilled 27 wells and found oil in 26 of them. It has been a tremendous exploration run.

Mr Heavey is keen to emphasise that Tullow is no fly-by-night operation. He acknowledges that the discoveries, at two billion proven barrels of oil and rising, promise to transform not only Tullow but the East African country itself, which for the first time is poised to become a major oil producer, with all of the potential pitfalls that may bring.

Corruption and distortion of the local economy are not the only concerns. The pristine environment of the Lake Albert region is also at stake, amid concerns about gas flaring and pollution.

Africa has got some appalling examples of the oil industry getting it wrong, Mr Heavey said. We want to make sure the oil industry in Uganda is a benefit not a curse. Its hard to appreciate just how beautiful this place is. We are not going to allow anyone to come in and ruin it.

Nevertheless, developing Lake Albert sensitively will be a daunting task, requiring careful stewardship and billions of dollars of investment to build pumping stations, a refinery, pipelines, road and rail infrastructure. That need for cash explains why Mr Heavey brought CNOOC on board last month, a partner with enough financial muscle to develop the field.

It was a deft piece of footwork that should give Tullow $2.5 billion (1.6 billion) in exchange for a stake it had acquired from a partner, while elbowing aside a string of rival oil giants keen to win a slice of the action, including Eni and ExxonMobil. Within three years, the Lake Albert region could be pumping 350,000 barrels per day, worth more than $27 million at present prices or nearly $10 billion per year.

While some have questioned Tullows ability to evolve from an explorer to a major oil producer, Mr Heavey, who said that the development would cost from $4 billion to $6.5 billion, seems unfazed. This is normal oil industry work, no big deal. Tullow is a very aggressive company. I think we could double in size again without breaking sweat.

Is that far-fetched? While Tullows discoveries in Uganda may have hogged the headlines, Ghana, where the group has uncovered two huge new offshore fields, may turn out to be an even bigger prize. The first of these Jubilee is due to enter commercial production at the end of this year, but there are signs that Tullow and its partners have stumbled across a whole new oil frontier off the coast of West Africa.

Tullow has secured development rights to adjoining areas with the same geology in Sierra Leone and Ivory Coast and is even looking across the Atlantic at similar rock structures off the coast of French Guiana.

Mr Heaveys Irish eyes twinkle at the prospect of further exploration success. We believe there is huge potential out there, he said. Mauritania hasnt really been explored at all, especially the deepwater. And Central and Eastern Africa are totally unexplored. Tullow may have come a long way but for its chief executive this is only the start of the journey. We have the assets, the goodwill and the financial strength. There are no obstacles in our way. The bigger you are, the more firepower you have and the more opportunities are there. Tullow could be a 30 billion company in three to five years. There is no reason why it shouldnt be.

But he is not getting carried away. Right now it is a golden age for exploration there is a huge gap in the market for what we do but soon it will be back to scavenging again. And he has proved he can do that already.

CV

Born Castlerea in Co Roscommon, March 14, 1953

Education Clongowes Wood College, Co Kildare ; degree in commerce at University College, Dublin

Career Qualified as a chartered accountant in 1978 with Robert J. Kidney in Dublin and worked with the company until 1979. Later worked for Aer Lingus as a financial controller and left to found Tullow Oil in 1985. Won the Ernst & Young Entrepreneur of the Year Award in Ireland in 2005. Tullows community development initiative in Uganda won the Oversees CSR Programme at the Chamber Irelands Presidents Awards for Corporate Social Responsibility Family Lives in Windsor with his wife, Lorraine, and their three children

Q&A

What was the most important event in your working life?

Hasnt happened yet

Which person do you most admire?

Nelson Mandela

What gadget must you have?

My BlackBerry

What does leadership mean to you?

You need somebody who can come up with a vision and who has the ambition to glue the team together. You also have to create an environment where people love to come to work

How do you relax?

Playing golf