Tullow Swings Into Profit As Focus Shifts To Kenya
Feb 7 (Reuters) - Africa-focused oil and gas producer Tullow Oil swung back into profit in 2017 after three years in the red, and outlined plans to begin production in Kenya by as early as 2021.
The London-listed company is targeting East Africa - Uganda but particularly Kenya - as its next major frontier after developing two large fields in Ghana earlier this decade.
The recovery in oil prices to over $60 a barrel by the end of 2017, as well as higher production from its flagship West African fields, allowed Tullow to boost revenue and sharply reduce debt. That, in turn, helped it to turn its focus to new projects and exploration for new fields around the world.
Tullow shares were up 0.8 percent at 1130 GMT on Wednesday, compared with a 0.9 percent rise in the sector index.
Tullow, which entered Kenya in 2010 and has more than 48,000 square kilometres of acreage in the country, said after appraisal drilling and well tests that it estimated the land-locked South Lokichar basin contained 560 million barrels in so-called 2C proven and probable oil reserves.
Tullow had previously estimated reserves of 750 million barrels there, according to a different metric including possible future upside potential. In terms of Kenya's best-case future potential, Tullow increased the upper range on Wednesday from around 1 billion barrels to 1.23 billion.
Tullow said it had proposed to the Kenyan government to start developing the basin's Amosing and Ngamia fields and construct a processing facility with a capacity of 60,000 to 80,000 barrels per day, which would be exported via pipeline to the coastal town of Lamu.
The company expects to reach a final investment decision (FID) on the project in 2019 and first oil production by 2021-22.
Discussions with the Kenyan government on the pipeline construction are under way, Chief Executive Paul McDade said, adding 2022 was a more realistic timeframe for first oil.
"We are pretty much ready to go on two fields and ramp up production," McDade told Reuters in an interview.
Tullow, which holds 50 percent of the Kenyan development, will seek to reduce its stake once a FID decision is reached, he said. Toronto-listed Africa Oil has a 25 percent stake in the Lokichar development.
The Kenyan project is expected to cost $1.8 billion, while the pipeline construction would require $1.1 billion, Tullow said.
"Tullow is in a much better position now than a year ago. We also think that the return of the growth function in the group is sensible and controlled," Davy Research analysts said in a note.
Tullow's net debt fell 27 percent to $3.5 billion as higher revenue allowed the company to end 2017 with $543 million of free cash flow. McDade said oil prices in the high $60s would create an opportunity for Tullow to grow its free cash flow.
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