Tuesday 23 January 2018

Tullow shares slump despite four-fold rise in profits to €109m

Results fell short of market expectations

Peter Flanagan

SHARES in oil and gas explorer Tullow Oil fell nearly 5pc yesterday, despite the company more than quadrupling its profits.

The company said pre-tax profits jumped from $33m (€23.7m) to $152m (€109m) on the back of revenue of just over $1bn (€719m). Those numbers translated to basic earnings per share which nearly doubled to 6.1c. Profit after tax more than doubled to $73m (€52m) while the dividend remained at 4c.

Despite those numbers, shares were held back after increased staff costs and write-offs meant profits were well short of the $210m (€151m) expected by analysts.

Write-offs almost doubled to $154.7m (€111.2m) following exploration failures in Gabon, Ghana and Tanzania and after Tullow gave up some licences in Gabon and Angola while staff costs increased by $10m (€7m).

Those expenses were magnified with the admission of what chef executive Aidan Heavey described as "slower progress" on the farm down of a project in Uganda.

Tullow paid about $1.5bn (€1.07bn) in July to Heritage Oil for interests in the Lake Albert basin, but Uganda withheld the final approval of the deal amid a tax dispute, an issue that has to be resolved before partners CNOOC and Total can join the venture with Tullow.


Despite those delays, Mr Heavey remained confident the matter would be resolved in the first half of this year, and categorically dismissed concerns that CNOOC and Total could pull out of the partnership.

"They have been in the room during our negotiations so they are fully aware of the situation and completely back what we're doing," said Mr Heavey.

For the year ahead, Tullow's 'Jubilee' field off Africa produced first oil in December and that is seen as a crucial step in Tullow's development.

"Jubilee makes us a legitimate player in the deep water sector and is critical to our development as a company.

"This year has started very well with production increasing from the field and continued exploration and appraisal success," added Mr Heavey.

Tullow plans a 40-well exploration programme for the year ahead.

Davy Stockbrokers' Job Langbroek welcomed the results and pointed to the scope the company had for future development.

"Already this year, production is likely to increase to 90,000 barrels per day. If we take into account Ghanaian discoveries and the hopefully reinvigorated Ugandan business, output net to Tullow of significantly over 200,000 barrels per day is possible, changing the profile of the group entirely," he said.

Tullow closed down 4.64pc at €16.63 in Dublin, while the stock in London fell 3.2pc to 1,413p.

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