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Tullow Oil doubles dividend as profits soar

Published: March 14, 2012 | 10:15 am
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The soaring price of oil and a ramp-up in production at a new oilfield in Ghana helped Tullow Oil report a six-fold increase in its full-year pre-tax profit and a doubling of its dividend.
The Africa-focused oil explorer on Wednesday reported a year-on-year doubling of revenues to $2.3bn in 2011 on the back of an average price per barrel that rose from $78 to $108.

The FTSE 100 company’s balance sheet received a further boost last month following the completion of a long-delayed deal to sell two-thirds of its Ugandan acreage – one of Africa’s most promising oil prospects – for $2.9bn to France’s Total and China’s Cnooc.
The “farm-in” agreement, under which operating responsibilities within the basin are divided between the three groups, was held up by a tax dispute and allegations of corruption.
The $2.9bn – to be booked in 2012 – will allow Tullow to expand its exploration projects around Africa and the Atlantic basin.
“The completion of the Uganda farm-out process since the year-end has completely changed the tenor of the group’s financial position,” said Job Langbroek, an analyst at Davy Research.
“Together with the expectation that increased output with probably much the same level of pricing, this will produce another year of robust cashflows.”
Tullow said it would invest $2bn in capital expenditure this year – up from $1.4bn in 2011 – much of which would be spent on projects such as drilling off the coast of French Guiana, where the explorer reported a significant find in September.
However, some analysts say Tullow has failed to take full advantage of the ballooning oil price due to technical problems at its Jubilee field in Ghana – which accounts for 40 per cent of the company’s production – that have resulted in pipes becoming clogged with clay.
Average gross production during 2011 from the Jubilee field was 66,000 barrels a day – about half the targeted “field plateau rate” of 120,000 b/d.
This in turn dragged down average group production to 78,200 b/d for 2011, below the range of 79,000 to 81,000 b/d that Tullow forecast in November.
“With the stock trading at a material premium to total net asset value, we see no reason to change our sell recommendation on the back of these results and operating update,” said William Arnstein, an analyst at FinnCap.
Aidan Heavey, Tullow chief executive, said: “In the coming year, we will continue to execute our industry-leading exploration programme, appraise major discoveries and invest in key development projects in Ghana and Uganda.”
“Tullow now has a strong balance sheet and increased cash flow, which gives us financial flexibility and a firm foundation for further growth.”
Tullow has also faced investor pressure after drilling at its prospect offshore Sierra Leone indicated gas and light oil at the lower end of expectations.
In the 12 months to December 31, Tullow reported revenues up from $1.1bn to $2.3bn, and pre-tax profit that rose from $179m to $1.1bn.
Diluted earnings per share rose from 8 cents to 72 cents, and a final dividend of 8p a share (4p) was recommended, bringing the total for 2011 to 12p (6p).
Tullow shares edged up by 1.5 per cent, or 22p, to £14.76 in early London trading.


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