Tullow shares fall as drilling plans advance

TULLOW Oil shares have fallen heavily in London as the company plans an intensive exploration programme, after announcing a 43 per cent rise in pre-tax profit to £1.2 million in the first half.

There were no deals in Dublin but an offer price of 93p on the market indicates an imminent fall on the previously quoted price of 96p. And that was 4p down on Wednesday's closing price of loop. In London the shares fell by 7 3/4p to 92p.

In an up-beat statement, Tullow said it had the resources (it raised £30 million in a rights issue in August) to fund an aggressive exploration programme, develop existing discoveries and expand into new areas. That, however, did not convince the market, which is still smarting from last month's revelation that Tullow had disappointing results from an exploration well in Pakistan.

Its exploration programme, the company said, was currently being expanded into some promising new areas, with licences currently being finalised in India and Bangladesh. "Activity in the company over the next 12 months will be intense, with exploration, development and product ion projects spread between established countries and new areas, according to Tullow.

Chairman Mr Tom Toner noted that considerable emphasis has been placed on expanding the company's asset base in order to give a better geographical spread and allow for greater growth. By the end of this year, Tullow expects to have one new exploration licence in Egypt and two in Bangladesh, while there are negotiations on two Indian blocks.

However, the market is still disappointed with the announcement that it had flowed poor-quality gas from an exploration well in Pakistan. The interim statement described the result as "disappointing". The first appraisal well on the Sara discovery while proving the extent of the reservoir sand, was beyond the "margin of the field". The second well, in the other side of a fault "proved water wet".

Tullow's estimate of these reserves has now been downgraded. But in an optimistic stance, the group said it plans further drilling in 1997 "which should prove up further reserves in line with our original expectations".

In the meantime, Tullow has asked the government of Pakistan for permission to sell the Sara gas to the local power station while waiting construction of the Liberty power plant. Mr Toner said this will provide "valuable cash flow and profit" and will also "help in quantifying the size of the reserve".

The exploration well in Block B, Sara West 1, "discovered a potentially very large field", said Mr Toner. However, only 14 per cent of the gas is combustible hydrocarbons. A feasibility study has been commissioned to examine the commercial prospects of the field.

In Britain, a further development well, West Firsby 6, is currently being drilled. In Syria, the Kishma field was declared commercial. Tullow is the operator and has a 24 per cent interest.