Companies: TLW   

Oil finds in Ghana and Uganda make Tullow Oil optimistic despite a 57 per cent pre-tax profits fall to £114 million.

The fully listed company, which seeks and produces oil and gas around the world, increased attributable production 13 per cent to 73,100 barrels a day last year and raised sales ten per cent to £639 million. Although Tullow benefited from a 20 per cent increase in the price it obtained for its oil, a weak gas market in the first half-year meant its realised gas price fell 19 per cent during the year, which contributed to the fall in profits, while earnings dropped 71 per cent to 7.1p a share.

In addition, exploration costs doubled to £64.2 million and net interest costs trebled to £45.6 million, largely reflecting the debt increase resulting from the acquisition of West Africa-focused Hardman Resources for £335 million cash and 65 million shares. Net cash flow from operating activities rose nearly 22 per cent to £417 million, while year-end cash was down £17 million at £82.2 million.

But what made 2007 a ‘transformational year’, according to Tullow, were its exploration successes. The company made its ‘largest ever’ discovery in the Jubilee field offshore Ghana, where it claims potential reserves of 1.3 billion barrels and expects production to start in 2010.

In Uganda, where Tullow spent more than £50 million on exploration and appraisal in the Lake Albert Rift Basin, the company says it has the potential to ‘more than double’ its worldwide reserve base. After the company’s year-end in January it agreed to sell its 11 per cent of the M’Boundi field in Congo (Brazzaville) for £218 million to the Korea National Oil Company.

Chief executive Aidan Heavey argues ‘the outlook for 2008 and beyond is extremely promising’. Tullow shares, first recommended by Growth Company Investor at 72p five years ago, now stand at 644.5p, up 14.5p this morning, valuing the company at £4.6 billion, and could still fare better than several others in the sector.

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