Monday 18 December 2017

Biggest Tullow shares fall in four years after Ghana well setback

Thomas Molloy

Thomas Molloy

SHARES in Tullow Oil suffered their biggest fall in four years yesterday in Dublin and London as the company admitted that a well drilled off the coast of Ghana had not found oil.

The shares closed down 7.4pc at a 15-month low of €14.27 in Dublin as the company also announced it was buying a Norwegian company.

Analysts said the main reason for the plunge, which wiped more than a €1bn off Tullow's market value, was the failure to find oil in commercial quantities in the Deepwater Tano license off Ghana. It also relinquished the Georgetown licence off Guyana, one of its key exploration frontiers.

Tullow's announcement that it plans to buy Norway's Spring Energy for $372m to add prospects in the North, Norwegian and Barents seas also unsettled investors.

"Generally the market isn't liking acquisition in (the) exploration and production (sector) at the moment," one analyst commented, calling the deal "logical", given management's desire to push into that area.

"The view is that they've got quite a full opportunity set within the organic side of things."

Tullow's plans to exit the UK and Netherlands by selling its southern North Sea gas assets didn't help matters. The fields, some of which were only acquired last year, produce about 18,000 barrels a day and may fetch $500m (€385m), according to Barclays analysts.

"They are selling quite a significant part of their production," Mark Wilson, a London-based analyst at Macquarie Bank, pointed out.

Tullow plans to focus on oil exploration and bring participation in 16 wells in Norway in the next two years. Drillers led by state oil company Statoil are pushing into Norway's Barents Sea, north of the North Sea fields.

A string of big discoveries off the coast of Norway in the last two years, including the giant Johan Sverdrup field – 2011's biggest find globally – have revived interest in the Norwegian North Sea, contrasting with fortunes off the coast of Britain, where new finds are fewer and tend to be small.

"The Barents Sea is probably the one that we have been looking at more because it has big targets," said Tullow's Irish-born chief executive Aidan Heavey.

Spring, owned by private equity investor HitecVision, holds 28 licences across Norway's continental shelf. The company's chief executive Roar Tessem will become managing director of Tullow Norge and oversee explorations in Norway and Greenland.

"The Norwegian assets are a very good balance because it allows us to explore in Europe," Mr Heavey added in an interview with Reuters.

Yesterday's agreement includes as much as $300m in bonus payments in the event of exploration success, which would bring the total cost to $672m.

"We see this deal as a clear extension of the group's existing strategy – focus on oil-biased exploration," Tullow's broker Barclays wrote. "This focus is further enhanced by the group's decision to dispose of its UK and Dutch gas assets."

The North Sea sale, which will be managed by Jefferies International, includes assets acquired through the £300m purchase of Dutch producer Nuon Exploration and Production in May 2011. (Additional reporting Bloomberg and Reuters)

Irish Independent

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