Tullow Oil to invest $500m in exploration growth

Tullow Oil Plc (LON:TLW, PINK:TUWLF) announced this morning that their 2009 annual results were down on 2008, despite exceptional exploration developments. The group attributed the downturn to  a slump in production volumes and commodity prices.

Tullow is one of the largest independent oil and gas exploration and production companies in Europe, quoted on the London and Irish Stock Exchanges. The Group has interests in over 85 exploration and production licences across 23 countries and focuses on four core areas: Africa, Europe, South Asia and South America.  In Africa, Tullow has production in Gabon, Côte d'Ivoire, Mauritania, Congo (Brazzaville) and Equatorial Guinea and two large appraisal and development programmes in Ghana and Uganda. Tullow also has exploration interests in Gabon, Côte d'Ivoire, Liberia, Sierra Leone, Mauritania, Senegal, Congo (DRC), Tanzania, Madagascar, Namibia and Angola.

The Company reported this morning that their financial results for 2009 were down compared to the previous year. Over the year, production levels fell to 58,300 barrels of oil equivalent per day, down 12% on 2008 levels, while a barrel of oil fetched $60 - 18% down on the $73.6 price tag seen in 2008. Realised gas prices shed 25% in 2009 to 39.3p per therm, compared to 52.4p per therm the previous year.  However, the Company remains positive going forward, saying they are well funded to step up near-term appraisal, exploration and production activities due to the successful completion of $2.25 billion new debt facilities, £1.33 billion raised through equity placings and with a farmdown expected in Uganda.

In a call earlier today with Stockopedia, the company said the last 12 months had been pivotal for Tullow's development, where the focus has been on bringing the main assets into production and continuing exploration. In 2009 working interest production averaged 19,800 BOE/D. There were 13 successful discoveries from 15 wells, with major discoveries at Jobi-Rii in Uganda and Tweneboa in Ghana. Shell and Total were identified as major partners in French Guyana. The restructuring of Pakistan to a non-operated business has been completed.

In Uganda, where the company is currently producing in excess of 800 million barrels, the company has exercised pre-emption over Heritage Oil's Ugandan sale in Jan 2010 for up to USD$1.5 billion. The company also say they are finalising a farm-in deal subject to the consent of the Ugandan government. CNOOC and Total have been proposed as the new joint venture partners to facilitate basin development.  They expect these plans to be finalised over the next few weeks. Going forward, at the Jubilee prospect, oil is expected on time and on budget, with the first production anticipated Q4 2010 and  a Jubilee-type play potential identified in South American acreage. The company expect the Jubilee prospect to bring in approximately $200 million per annum from exploration business development and farm in opportunities.

The company reiterated that, although they are moving into a production phase, exploration is still a critical part of Tullow's activity. Exploration programs are due to accelerate over the coming year, with a dedicated budget of $500 million per annum for new projects appraisal and seismic activity. This will be allocated to 30 wells. However, the company were unable to comment on their exploration plans in Uganda as they are in the final stage of finalising commitments with partners and governments. The company expect to release a full report on Uganda exploration and pipeline development activites later in the year. The company is keen to maintain its scale of exploration growth. In terms of geographies, Africa is still a principal focus for Tullow - they continue to see the country as having ample underexplored territory with substantial upside potential. However, the company also say they are open to opportunities in new regions, where they can leverage on their core strengths. Commenting today, Aidan Heavey, Chief Executive, said:

"A strong performance in 2009 and an excellent start to 2010 has enabled the Group to continue to create material exploration and development opportunities. Although our 2009 reported results still reflect a period of financial transition, first oil in Ghana from the Jubilee field later this year will result in considerable production growth and increased cash flow. Our transformational exploration programme continues apace with up to 30 wells planned for 2010. In Uganda we are working closely with the government and two potential new partners to accelerate development. Our future growth is well underpinned by a significantly strengthened capital structure and overall the performance prospects for the Group are very strong."

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