Tullow shares fall despite 361% rise in profit

TULLOW OIL’S share price fell in Dublin and London yesterday, as the exploration company posted full-year results within guidance but behind analysts’ expectations.

Pretax profits rose by 361 per cent to $152 million (€109 million) last year, while revenue increased by 19 per cent from $916 million to $1.09 billion last year, as a rise in oil prices offset a 2 per cent fall in sales volumes.

However, concerns about continuing difficulties in Uganda overshadowed the robust financial performance. The company reported “slower progress” in its tax dispute with Ugandan authorities, although a legally binding memorandum of understanding between Tullow and the Ugandan government has been drafted.

“The hold-up has been due mainly to the election in Uganda,” chief executive Aidan Heavey said yesterday, although he declined to give a date for the completion of the deal. “With the elections out of the way and all parties on side, there should be no delay.”

Tullow produced 58,100 barrels of oil equivalent per day (boepd), broadly in line with expectations, but fractionally down on 2009.

Mr Heavey described 2010 as a “transformational year”, highlighting in particular the start of production in its Jubilee field in Ghana. “Ghana will drive increases in volumes and sales for this year, substantially increasing production,” he said.

The company reiterated its guidance of between 86,000 and 92,000 boepd in 2011 and expects to reach full production capacity of 120,000 barrels in the next five months. A commercial declaration for last year’s Enyenra and Tweneboa discovery in Ghana will be submitted to the Ghanaian government later this year.

Yesterday’s results showed that earnings per share almost doubled from 3.2 cent in 2009 to 6.1 cent last year. Tullow’s net debt stood at $1.95 billion at year end.

However, profits were partly offset by higher-than-expected costs related to the winding down of explorations in Gabon and Angola and costs associated with exploration failures in Gabon, Ghana and Tanzania.

Write-off costs almost doubled last year to $154.7 million.

Tullow sold its oil at an average price of $78 a barrel last year, compared to $60 in 2009.

Mr Heavey said that while the current hike in oil prices was positive, it did not reflect the fundamentals of the market and prices were likely to settle down.

Tullow closed 4.6 per cent lower in Dublin at €16.63. In London, its share price fell 3.2 per cent to 1,413 pence.

TULLOW OIL: 2010 results

Revenue:$1.09bn (+19%)

Pretax profits:$152m (+361%)

Operating profit: $235m (+56%)

Earnings per share:6.1 cents (+90%)

Final Dividend: 4 cents (+0%)

Production:58,000 boepd (+0%)

SUMMARY

Pretax profits soared by 361 per cent to $152 million at Tullow Oil last year, as stronger oil prices offset a decline in sales volume. However, continued uncertainty about the company’s oil interests in Uganda dampened market reaction. The main event for the FTSE and Iseq-listed company in 2010 was the commencement of production at Tullow’s Jubilee field in Ghana, with the company forecasting a major increase in production in 2011. The company kept its final dividend at 4.0 cent.