tullow news report

ROUNDUP Tullow's African ops could treble co production within 4 years - CEO
12-MAR-2008 12:13

LONDON (Thomson Financial) - Tullow Oil expects its Uganda and Ghana operations to double or treble the company's production figures in the next four years, the company's chief executive officer Aidan Heavey told Thomson Financial News.

'They will double or treble Tullow's production over the next three to four years and that is effectively our primary focus,' Heavey said of its large operations in the two African countries. 'The production growth will come largely from Africa because that is where the big projects are.'

Tullow expects African production to rise to 42,000 barrels of oil equivalent per day in 2008 from 40,300 boepd last time.

The company said that of a total 440 mln stg company capex guidance for the year, 325 mln stg will go towards African operations.

Tullow chief financial officer Tom Hickey told TFN: 'We are allocating our capital where we get the best returns and at the moment, because of the assets and the relevant pricing, that is Africa.'

Investment is expected to rise considerably in the next few years as production is set to begin at large fields including the Jubilee oil field which is expected to contain between 500 mln and 1.3 bln barrels.

The expected resource downgrade for Uganda following the Ngassa well suspension did not materialise with resource figures already given this year remaining the same.

'Tullow has the capability to grow substantially in the coming years and I believe we have the strategy, the assets and the team to achieve this. The outlook for 2008 and beyond is extremely promising,' Heavey said.

Tullow's full-year pretax profit fell to 114.2 mln stg from 263.3 mln stg in 2006, the result of lower UK gas prices and exploration write-offs during the year. The fall was much greater than expected by analysts who predicted, on average, 156 mln stg.

UK gas price realisations fell by 19 pct to 37.3 pence per therm following high gas prices in 2006, which contributed heavily to the fall, the company said.

Exploration cost write-offs nearly doubled to 64.2 mln stg in 2007, 51.1 mln stg of which was because of unsuccessful exploration in the UK, Gabon, Ghana and Namibia. The net recoverable reserves downgrade from the Chinguetti field in Mauritania increased the depreciation charge, as did the lower-than-expected production from the Thurne gas field in the UK. This depreciation affected earnings per share which fell 71 pct from 24.23 pence to 7.10 pence in 2007.

However, Tullow is still confident in its strong cash flow and asset base, said Heavey, shown in the rise in the final dividend to 4 pence per share from 3.5 pence last time.

For analysts, the importance for the share price is in the exploration and development performance in Africa going forward. Analysts at Evolution Securities, which has a 'buy' recommendation on Tullow, said of the company's interests in Ghana and Uganda: 'Each of these regions has the potential to transform the Tullow share price in the next 12 months. If the market is disappointed with the 2007 numbers, in our view this would present a good opportunity to add to holdings.'

Citigroup analysts concentrate on exploration performance: 'Bears on the stock are likely to focus on a sizeable earning miss, driven by higher depreciation, but crucially cash generation was consistent with expectations and in our view this is of secondary importance to upcoming drilling results.'

As operations in Africa grow, the company said it expects European oil and gas production to fall further in 2008 to 24,500 boepd from 28,500 in 2007.

Investment in the UK is expected to fall from 116.3 mln stg last year to just under 100 mln stg this year.

'Because of the opportunities in the UK being a bit smaller, the UK capital allocation has reduced a little, but with UK gas prices recovering as they have, we will probably invest a bit more over the course of the year,' CFO Hickey said.

In South America, Tullow is looking to expand operations, using the experience gained from its African presence. It has already signed up for licensing rounds in Brazil and is looking to do the same for rounds in Barbados.

'We are trying to expand on what we already know from West Africa into South America because a lot of the plays, a lot of the geology, is analogous. It might be long game, but we see a lot of potential there,' Heavey said

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