Tullow price falls after 93% decline in pretax profits

TULLOW OIL’S share price fell by 2.4 per cent in London yesterday following the publication of its full-year results, which showed a 93 per cent decline in its pretax profit.

Tullow’s pre-tax surplus declined to just £20 million in 2009 from £299 million a year earlier. This was in line with analysts’ expectations.

Its operating profit, meanwhile, was 68 per cent down at £95 million while sales declined by 16 per cent to £582 million.

Tullow said the 2009 results reflected a “period of financial transition” away from its established production assets, mostly in the North Sea, towards exploration and development opportunities in Africa, particularly Ghana and Uganda.

Tullow expects to spend about $500 million on exploration activities in Africa with 30 wells planned for 2010 alone.

“It’s [the fall in profitability] down to the fact that we haven’t been investing in our smaller assets,” Tullow chief executive Aidan Heavey told The Irish Times.

“Once you stop doing this, fields start to decline. We took a conscious decision three years ago to invest in Uganda and Ghana and that’s where our focus is now,” he said.

Mr Heavey said the first oil from its Jubilee field in Ghana would begin to flow later this year.

Mr Heavey said that Tullow was well funded for its future planned exploration investment programme. The company secured debt facilities of $2.25 billion in 2009 and has raised £1.33 billion in equity placings since January 2009.

“Funding is not an issue for us,” Mr Heavey said.

In relation to Uganda, Tullow last year exercised its pre-emption rights to acquire the interests of Heritage Oil. This cost the company $1.5 billion.

It now proposes to partner on the fields with French oil group Total and China’s CNOOC. Each party would have a one-third interest in the venture.

“We felt it was better to bring both groups in rather than one,” Mr Heavey said, adding that this would accelerate development of the fields in Uganda.

This partnership arrangement is subject to approval from the Ugandan authorities, which is expected in the “coming weeks”.

The “discovered resource” in Uganda is now in excess of 800 million barrels of oil and the first commercial production is expected in 2011.

Mr Heavey said Tullow’s share of production from the Ugandan fields would be greater than “all its existing production”.

The Tullow executive said the Ugandan fields should produce 200,000 barrels of oil a day “at least and it could be greater”.

Tullow produced 58,300 barrels of oil equivalent a day in 2009. This represented a 12 per cent decline on the previous year.

The decline in Tullow’s financial performance impacted on its earnings per share, which fell to 1.9 pence last year from 30.9 pence in 2008.

The company has proposed a final dividend for the year of 4 pence a share, the same level as in 2008.