Tullow wrote off €498m in 2012 after unsuccessful drillings

Oil explorer Tullow wrote off $671 million (€498 million) in 2012 after a number of unsuccessful drilling operations.

Profits before tax rose 4 per cent to $1.116 billion (€828 million), up from $1.073 million in 2011. However, shares rose on the FTSE 100 yesterday as investors focused on positive results from its Kenyan operations and the group’s renewed exploration focus.

Drilling at its Ngamia-1 and Twiga South-1 wells in Kenya have given positive results and tests at the Twiga site have shown the “first potentially commercial flow rates achieved in Kenya”.

Its Kenya-Ethiopia portfolio will also be closely watched after difficult conditions were encountered at its Paipai-1 well and results are expected at the end of February.

Commitment

Tullow committed itself to edging up capital expenditure to $2 billion this year as revenues from wells off Ghana are used to drive further drilling in Africa and beyond.

The commitment comes in spite of the company in January trimming back production guidance for the coming year.

High oil prices averaging $108 a barrel for production centred by Tullow’s Jubilee field helped maintain the overall output and revenues at about $2.3 billion in spite of an unanticipated shutdown at North Sea fields in which Tullow remains a shareholder.

Exploration highlight

Aidan Heavey, chief executive, identified the “basin-opening oil discovery in Kenya” as Tullow’s exploration highlight of the year during which it spent $1 billion on exploration and appraisal.

Tullow plans to sell off its North Sea oil interests during the year in order to return to its exploration roots and will drill over 40 wells in 2013.

“Tullow won’t be getting on a treadmill of development and production,” said Mr Heavey.

The group has made new entries in Guinea, Greenland, Uruguay and Mozambique.

“One of the market views has been that Tullow was getting too big,” Goodbody Stockbrokers analyst Gerry Hennigan said. “They are now making a move to stay true to their exploration roots and part of that strategy is divesting more mature assets, like in the North Sea.”

The group reaffirmed it guidance of 86,000 to 92,000 barrels of oil equivalent per day for the coming year.

Shares in the company, though down from their 52-week peak of £16.11 hit in late February last year, rose by 5 per cent to £12.44 – (Additional reporting: The Financial Times Limited 2013)