Thursday 23 February 2017

Tullow Oil could lose out amid Madagascar uncertainty

Thomas Molloy

Thomas Molloy

DUBLIN-listed Tullow Oil could lose out after exploration partner Madagascar Oil delisted from London's Alternative Investment Market amid confusion about the east African island's plans for the oil industry, analysts said yesterday.

Madagascar Oil floated in London three weeks ago but suspended trading in its shares after government officials in Madagascar told company executives the state was planning to seize some of Madagascar Oil's assets.

Madagascar Oil and Tullow both hold 50pc stakes in an onshore oil field while the two companies also have separate interests on the island.

The government is not trying to seize the field jointly owned by Tullow and Madagascar Oil.

Acquisition

"There can be no guarantee that any price agreed for such an acquisition will be representative of the fair value of such assets," Madagascar Oil said as the shares were suspended. Madagascar Oil added it would "robustly defend its position" but the prospects of a successful outcome appear slight.

The government came to power in a coup last year which overthrew the democratically elected leader and itself faced down another coup attempt days before Madagascar Oil's flotation.

Tullow has not yet begun to pump oil from the two onshore fields on the island but a seismic survey is scheduled.

"We value Tullow's interest in Block 3109 at 4.5p on a risked basis and have yet to apportion any value to Block 3111," said Goodbody Stockbrokers analyst Gerry Hennigan yesterday.

"While there is no indication of a similar move by the state over the licences of interest to Tullow, events in the country, which has been the subject of political instability in the past, nonetheless warrant attention."

Madagascar Oil is seeking to develop the country's oil sands, which environmentalists say are likely to be the world's most polluting.

This arrangement would allow operators to receive 99pc of the revenue during the first 10 years while they recouped their significant upfront costs.

Irish Independent

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