tullow profit increases on higher production

Tullow Profit Increases on Higher Production, Prices (Update2)

By Paul Dobson

March 21 (Bloomberg) -- Tullow Oil Plc, an oil and natural- gas explorer on three continents, said second-half profit rose 24 percent after production increased and prices surged. It predicted a more challenging operating environment in the coming year.

Net earnings from continuing activities for the period increased to 62 million pounds ($121.7 million), or 9.25 pence a share, from 50 million pounds, or 7.46 pence, in the year-earlier period, Bloomberg calculated from information in a Regulatory News Service statement from the company today.

Crude oil prices last year rose to record-high levels of more than $70 a barrel on concerns that tight supplies might not keep up with demand growth in the U.S. and developing nations. Lease rates for rigs have climbed to records as producers step up oil exploration to take advantage of the high prices.

Tullow's output increased 11 percent to an average 64,720 barrels of oil equivalent a day last year while sales prices rose by an average 29 percent. The London-based company today repeated its January forecast that average production this year will exceed 80,000 barrels of oil equivalent a day, and said it hopes to produce as much as 85,000 barrels a day by the end of the year.

Uganda Reserves

Recoverable reserves in Uganda's Albertine Basin may be in the range of 100 million barrels to 250 million barrels, based on evidence from wells drilled, the London-based company said.

``It's every small company's dream to have an area like this,'' Chief Executive Officer Aidan Heavey said today in a phone interview. ``There's huge upside potential in this basin.''

The company's shares rose as much as 14.25 pence, or 4 percent, to 373.5 pence and traded at 370.25 pence at 8:53 a.m. in London.

Tullow produces fuel in southern Asia, western Africa and northwestern Europe. Growth in production this year will come mainly from the Okume Complex in Equatorial Guinea, and from the Chinguetti field in Mauritania and the Chachar gas project in Pakistan, the company said in January.

The strong price environment ``has been countered by a tight and inflationary contractor environment,'' Tullow said. It has seen ``lead times for future developments significantly increase.''

The company downgraded the commercial reserves attributed to the U.K. Schooner and Ketch fields by 45 billion cubic meters. Higher production costs in the U.K. have led the company to postpone or abandon development projects in the U.K., Heavey said.

``In the U.K. the cost environment has got very expensive for marginal developments,'' he said. ``One of the big attractions of Tullow is the breadth of our portfolio,'' which will enable the company focus on other areas, he said.

The company agreed in September to buy Australian producer Hardman Resources Ltd. for about A$1.1 billion ($1 billion), boosting reserves by 30 percent and increasing its output by 6,000 barrels of oil equivalent a day. The purchase gives Tullow access to discoveries in Uganda, Mauritania, Tanzania and French Guiana.

Profit for the full year from continuing activities increased to 157.4 million pounds, or 23.67 pence a share, from 113.1 million pounds, or 17.15 pence, a year earlier, Tullow said in the statement. It said it will pay a dividend of 5.5 pence a share, an increase of 38 percent from 2005.

To contact the reporter on this story: Paul Dobson in London at

Last Updated: March 21, 2007 04:57 EDT