Tullow Oil's 2011 Trading Update Fails to Impress

Africa-focused Tullow Oil issued a trading update Wednesday in which the firm stated that total revenue for 2011 is expected to be around $2.3 billion – more than double the $1.1 billion achieved in 2010. In spite of this, oil analysts who follow the firm were not impressed with the firm's production figures.

Meanwhile, Tullow said it is teaming up with Royal Dutch Shell to explore for oil and gas in what the firm described as "select basins and geological plays around the Atlantic Basin".

Tullow, headquartered in London and one of the largest 100 companies listed on the London Stock Exchange, reported that production averaged 78,200 barrels of oil equivalent per day last year. It also said that realized commodity prices during 2011 "were significantly higher than the 2010 levels" with the realized oil price at $108 per barrel (post hedge) and realized UK gas price at 57 pence (approx. 88 US cents) per therm.
For 2012, Tullow expects production to average between 78,000 boepd and 86,000 boepd.
"Record revenues and cash flows from increased production and strong commodity prices combined with industry-leading exploration success underpin another very good year for Tullow in 2011," said Tullow's chief executive Aidan Heavey.
However, oil sector analysts had expected higher average production figures. Will Arnstein, an analyst at London-based finnCap, said that he had forecast 80,400 boepd and that the consensus forecast among analysts who follow Tullow had been 80,700 boepd.
"Compared with our numbers the weakness appears across the board and is likely to continue going forward. That is evident in the 2012 guidance of 78-86,000 boepd, which is well below our current published forecast of 98,600 boepd," wrote Arnstein in a research note Wednesday.
The lower-than-expected production volumes were attributed to both declining volumes at mature fields and problems with Tullow's Jubilee field in Ghana, West Africa.
London-based investment bank Westhouse Securities noted that the stockmarket reacted negatively to today's update. "Teething problems at Jubilee appear to be resolved but at a cost in both lower production and remediation expense," it said, pointing out that after corrective activities that are expected to cost around $400 million, Jubilee is expected to average between 70,000 and 90,000 bopd this year.
Meanwhile, in Uganda arrangements are being finalized with the Ugandan government to complete a $2.9 billion farm-down and begin development at the Lake Albert Basin. Elsewhere in Africa, Tullow is expected to be very busy this year with a 'high impact' exploration and appraisal program, consisting of approximately 40 wells planned for 2012.
Westhouse added: "Tullow remains a high-quality African play with significant takeover appeal, given its combination of production, near term development projects and exploration upside."
Separately, Tullow announced the signing of a non-binding memorandum of understanding with Shell to partner for new frontier exploration in select basins and geological plays in the Atlantic Basin.
"Tullow and Shell will pursue and evaluate transformational geological plays in underexplored frontier basins," said the firm. "This partnership combines the knowledge base and specialist capabilities of both companies to allow more effective derisking and development in areas of mutual interest with the potential to deliver exceptional results."


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