Tullow posts strong results but Ugandan oil fields fuel uncertainty

TULLOW OIL reported robust half-year results yesterday, but ongoing uncertainty over its Ugandan oil fields overshadowed the strong performance.

The oil exploration and gas company, which is listed in Dublin and London, reported better than expected results for the six months to June 30th, with an 11 per cent increase in sales revenue, up to $486 million (€384 million) from the first half of 2009, and a 35 per cent rise in operating profit, up to $124 million, pushing profit before tax up by 152 per cent to $131 million.

Tullow also increased its full-year production forecast to 57-58,000 barrels of oil equivalent per day, versus 55,800 at the last statement.

Aidan Heavey, Tullow chief executive, attributed the firm’s strong performance to “very good results in infill wells in Africa, better than expected production numbers and quite good commodity numbers”.

Mr Heavey said Tullow would experience a “step change” in production when Phase 1 of its Jubilee development project in offshore Ghana comes on stream, “a major milestone in the business”.

The project remains on track for first oil before year-end, with production expected to start in November or December, ramping up to 120,000 barrels per day over the following three to six months.

Tullow said it has yet to resolve an issue with the Government of Uganda with regards to its $1.5 billion acquisition of a stake in the development of the Lake Albert oilfields from its former partner Heritage Oil.

Heritage is in dispute with the government over the payment of capital gains tax owing to the sale of its interests to Tullow, and this issue needs to be resolved before Tullow’s purchase of assets in Uganda can be finalised.

While a resolution had been thought to be imminent last month, it has now been further delayed.

This will slow development although Tullow acknowledged that its process to sell interests to China National Offshore Oil Corp and Frances Total, with whom it will develop the fields, is well advanced.

However, Mr Heavey expects that the issue will be resolved from Tullow’s perspective within weeks. “It shouldn’t affect us overall. We should get fields in production on schedule,” he said.

On the exploration front, Tullow confirmed that two wells off the coast of South America are on schedule for drilling for the first half of 2011.

Overall, analysts welcomed Tullows results, with Davy Stockbrokers indicating that the group remains in “rude health”, with net debt at the end of the period just over $200 million, largely reflecting a $1.45 billion equity placing in the first quarter.

But in a note, Dolmen Stockbrokers said that despite such strong operating figures, these results are “almost immaterial” as the firm’s value is derived from the assets in its exploration portfolio.

The stock closed down 72 cent in Dublin yesterday at €14.96.