Tullow slides 6pc on lower forecast
SHARES in Tullow Oil slid 6pc in Dublin and London yesterday after the company downgraded its production forecasts for 2011 and said a closely watched well off the coast of Liberia did not find oil in commercial quantities.
The double whammy for Tullow investors follows a long summer and autumn without definitive news about Tullow's problems in Uganda where the company has repeatedly missed a deadline for completing a major deal which would transform the company and remove most of its debt.
Production for 2011 will average 79,000 to 81,000 barrels of oil equivalent a day due to mechanical problems, the company said yesterday. That's down from the 82,000 to 84,000 barrels forecast in August.
Tullow, which has a reputation for opening up new oil basins, is still struggling to establish Liberia as a potential new producing territory after classifying the Montserrado well in Liberia as a sub-commercial discovery. The Montserrado-1 well is now being plugged and abandoned and the drillship moved to Sierra Leone.
"It is a premium-priced stock and vulnerable to any disappointing well results," Oriel Securities analysts said.
Royal Bank of Canada analyst Al Stanton said that disappointment with Montserrado was heightened by the fact that historically a successful well for Tullow has been followed by further successes.
"People were anticipating not just the upside value of Montserrado but Montserrado look-a-like 2, Montserrado look-a-like 3, look-a-like 4," he said.
Tullow, whose future production targets are underpinned by the giant Jubilee oil field off the coast of Ghana, said the ramp-up to the 120,000 barrels-a-day plateau production level at Jubilee would be delayed from its previous end-of-year guidance.
"It'll be sometime in 2012. It depends really upon working through these issues," chief financial officer Ian Springett said when asked when plateau production would be achieved.
Mr Stanton said the lack of clarity on Jubilee timings was also impacting the stock: "No explicit guidance on the 120,000 bopd plateau will push people's second-half cash-flow forecasts down and likewise first-half numbers for next year will go down slightly."
Tullow also said it was still waiting for a much-delayed deal in Uganda to conclude after having predicted in August that it would be completed in September.
The parliament in Kampala has asked for a corruption probe into the oil industry but the recommendation does not have to be accepted by Uganda's leaders.
"I think our view is that it absolutely should conclude this year," Mr Springett said.
Tullow has been waiting since 2010 to finalise a deal to bring in new partners -- French oil major Total and Chinese group CNOOC -- to start a $10bn (€7.4bn) oil development project around Lake Albert. (Additional reporting Bloomberg and Reuters)