Ugandan problems explain why investors are less than gushing

Tullow's Ghana oil field will be its main growth driver but legal issues in Uganda are a concern, writes SUZANNE LYNCH

FOR MOST listed firms a 361 per cent rise in profits would be something to shout about, but as the market reaction to yesterday’s results from Tullow Oil indicates, oil companies are inherently different entities.

Reserves, assets and exploration pipelines are what this business is all about, so it is unsurprising that the protracted legal entanglements around the company’s oil interests in Uganda are beginning to worry investors.

Tullow tried to give some comfort to investors yesterday, indicating that a deal is imminent, though the lack of a specific timeline is a concern.

In the meantime, shareholders will have to be content with the other main jewel in Tullow’s crown, its Jubilee oil field in Ghana.

Production there started late last year, and because other development projects will not start producing output until 2014 or 2015, the Ghana project will be the main driver of growth over the next few years. So far the signs are good, with production on target, and the company forecasting a dramatic increase in output this year from Jubilee.

Tullow has been one of Ireland’s success stories, with the once small-time exploration company morphing into a major exploration company with a market cap of about £13 billion on the FTSE index.

Nonetheless, it will now be nervously hoping that its decision to expand into a politically unstable region such as Uganda will pay off.