Tullow to make oil fields in Ghana a priority

Tullow Oil will spend about £ 500 mm this year speeding up development of its two biggest oil discoveries in Africa, in an attempt to ensure oil is produced from its Ghana fields by the end of 2010.
Successful drilling in Ghana and Uganda last year heightened optimism, even as the oil price and prospects for other independent oil and gas explorers fell. Tullow's total reserves and resources are now 825 mm barrels of oil equivalent, an increase of 50 %.

Reflecting its decision to "primarily focus on fast tracking its world class discoveries in Ghana and Uganda and selective high impact exploration", Tullow wrote off £ 164 mm related to projects in Suriname and other countries that it will now deprioritise. It further honed its portfolio by selling two assets for a net gain of £ 244 mm. The disposals pushed annual pre-tax profits to £ 299 mm. Sales were £ 692 mm. Capital expenditure for 2009 is budgeted at £ 600 mm, an increase of £ 120 mm year on year.
The great majority of this outlay isdevoted to Africa, especially to completing the first phase of the offshore Jubilee field in Ghana. Its latest discovery, the Tweneboa field -- also offshore Ghana -- holds potential resources of 1.4 bn barrels, the company said.

Tullow arranged a seven-year, $ 2 bn (£ 1.45 bn) credit facility to help it develop its enlarged resource base. It also raised £ 402 mm through a share placing in January.
In an exploration and production sector littered with hyped "sector picks" that fail to deliver, some veterans might look sceptically on Tullow. So far there are no data to dull its performance, with the minor exception of profitability dropping if one excludes one-off gains of £ 213 mm from disposals.

In fact Tullow still looks inexpensive. Assuming a long-term oil price of $ 90 and a dollar-to-sterling exchange rate of $ 1.50, Tullow's net asset value is 915 pence per share. Today, that oil price looks optimistic, but other lower NAV estimates also place Tullow at a discount.
The Tweneboa discovery is the latest addition to what looks like an embarrassment of riches for a mid-tier company, making Tullow more than ever a prime takeover target once markets recover.