Tullow Oil down as it cuts production outlook

Shares in Tullow Oil closed down 12 cent or 1.54 per cent at €7.65 in Dublin yesterday after the company said production levels this year would be below market expectations.

In a pre-close trading statement to the stock market, Tullow said its production would average 72,000-75,000 barrels of oil equivalent per day (boepd) in 2007. This compares with its previous guidance of 80,000 boepd.

The shortfall relates to Tullow's UK assets in the North Sea. Its UK production was 3 per cent lower in the first six months of this year compared with the same period of 2006.

"This reduction was driven by delayed completion of redevelopment wells within the Ketch field, conservative production management in response to weaker gas pricing and planned maintenance shutdowns occurring in June," the company said.

Tullow has also reduced its capital allocation to the UK in favour of other assets. The average UK production forecast for this year has been reduced to 28,000 boepd.

There was better news for shareholders on the exploration front. Tullow said there is "further upside potential" from its Mahogany discovery in Ghana, the company's biggest to date. It plans to drill an appraisal well on Mahogany in August, earlier than the market had expected.

Tullow also reported "upside potential" from its exploration activities in Uganda.

Aidan Heavey, Tullow's chief executive, said its primary focus was now on its activities in Africa. "Future capital allocation will be focused on optimising returns and accelerating activities on these high-impact projects, leading to a reduction in near-term UK programmes and production," he said.

Tullow said its capital expenditure for this year would be about £400 million, around £50 million higher than expectations. The company said 60 per cent of this would be focused on its production activities and the balance on exploration work.

Its exploration write-off for the first half of 2007 is expected to be £13 million while net debt at the end of June was £505.4 million.

Tullow, which has a market capitalisation of £3.7 billion in London, is on the verge of becoming a FTSE 100 company. The company is currently in line to make the cut-off when the September list is published.