SHARES IN Tullow Oil gained 2.54 per cent to close at 646p in London as investors brushed off a 57 per cent drop in pretax profits last year to £114.2 million (€148.79 million) in response to good results from its exploration projects in Africa.
Earnings per share of 7.1p came in below consensus estimates of 11.6p for a year in which Tullow's admission to the FTSE 100 index capped a major discovery of oil in Ghana and the advance of its projects in Uganda.
Tullow attributed the drop in profitability to a 19 per cent drop in gas prices in Britain - which offset gains from the increasing price of oil - as well as a 24 per cent rise in depreciation and associated charges to £203 million and £64.2 million in exploration write-offs from unsuccessful drilling in Britain, Namibia and Cote d'Ivoire.
Sales rose 10 per cent to £639 million as production rose 13 per cent to 73,100 barrels of oil equivalent per day on a working interest basis from 64,720.
Operating cashflow before working capital rose 6 per cent to £473.8 million. In spite of the drop in profits, Tullow increased its final dividend by 0.5p per share to 4p, bringing total dividend for the year 0.5p per share higher to 6p.
Finance chief Tom Hickey said in a conference call that Tullow's projects in Ghana and Uganda both had potential to double the scale of its business. "Exceptional exploration success and strong production in 2007 have created an opportunity to deliver a transformational step change to our business," said Aidan Heavey, Tullow founder and chief executive.
In Uganda, the firm expects to achieve first production from the Lake Albert Rift Basin region in the second half of 2009. Tullow plans a large-scale drilling campaign in the Butiaba area of the basin from next month, targeting overall reserve potential in excess of a billion barrels.
In Ghana, Tullow has targeted 2010 as the first-oil date from the Jubilee offshore field it discovered last year. With up to five exploration wells planned this year in an field estimated to contain 1.3 billion barrels of potential oil and gas, Tullow said it has already identified "upside potential" of more than 500 million barrels each from the Teak and Tweneboa wells in the field.
In the Netherlands, Tullow has acquired nine offshore exploration licences. The company said prospects there are "materially bigger" in comparison to those in adjacent British acreage.
Pretax profit: £114.2m (-57%)
Operating profit: £189m (-28%)
Revenue: £639.2m (+10%)
Basic earnings per share: 7.1p (-71%)
Final dividend: 4p per share (+14%)
Tullow Oil enjoyed exceptional exploration success in Ghana last year but its bottom line took a hit as low gas prices and write-offs from unsuccessful exploration efforts ate into its profit margins. In line with improving prospective inventories from its projects in Ghana and Uganda, Tullow's share price is on the rise.
