Boost for Tullow as partner in African holdings cashes out

Tullow Oil may sell part of its holding in east African fields in which its partner yesterday disposed of half its stake in a deal potentially valued at $845 million.

Tullow's shares surged in London early yesterday after its partner, Africa Oil, sold 50 per cent of its holding in a series of oil fields in Kenya and Ethiopia to Maersk for $365 million up-front and a potential further pay out of $480 million

The Irish company’s shares climbed almost 18 per cent at one point to a high of 259.99 pence sterling following the news.

Licence areas

Around lunchtime yesterday they were almost 15 per cent ahead at 250.8 pence. However, those advances were pared back to a 4.54 per cent gain to 228.1 pence by the close.

Tullow holds 50 per cent of the licence areas while Africa Oil and Maersk will each own 25 per cent. One of the fields, south Lokichar in Kenya, holds around 616 million barrels of oil.

The partners are already discussing its development with the country’s government.

It is understood that Tullow could look to cut its holding in the Kenyan field to around 30 per cent by selling part of its interest ahead of 2017, when it is scheduled to begin spending on developing it for commercial production.

It took a similar approach in Uganda where it sold one third each to Chinese operator, CNOOC and French giant, Total, as part of an agreement to develop the find.

Jefferies analysts Mark Wilson and Niki Kouzmanov calculated that Africa Oil’s deal implied a boost of 26 pence a share to the value of Tullow’s interest in Kenya.

They ranked the stock a hold in a note issued following the announcement.

Barclays, Tullow’s broker, said that deal was “significant” for the Irish company.

Its shares have taken a battering this year, dropping 39 per cent up to yesterday morning as oil prices continued a slide begun in late 2014.

The company responded by cutting back on exploration and seeking $500 million in savings over three years.

It also refocused its spending, allocating $1.2 billion of its $1.9 billion total to developing its TEN and Jubilee fields off the coast of Ghana in west Africa. TEN has the potential to deliver up to 80,000 barrels a-day and is due to begin producing in mid-2016.

Loses

The company lost $68 million after taxes in the first six months of this year. Revenues shrank 35 per cent to $820 million over the same period.

Tullow is one of Africa’s biggest oil exploration and production companies, with on- and off-shore interests in the east and west of the continent, including significant basins in Ghana and Uganda. It has also been exploring in Norway and South America.