More on Tullow Oil
Tullow Oil
Independent oil explorer and producer Tullow Oil should report good full year earnings due to better oil prices and contributions from acquisitions. The company spent over US$1 bn on acquisitions last year. Tullow’s latest trading update indicates that weighted average daily output has grown 62% to 40,600 boepd, largely due to the acquisition of Energy Africa. Production is currently running at 55,700 boepd, almost half of which is from its African interests.
In the first half of the year Tullow’s turnover grew by 16% to £76.5m and operating profits by 51% to £26.5m. Acquisitions contributed £10m to turnover and £3.9m to operating profit. The UK Southern North Sea remains Tullow Oil’s largest source of revenue contributing 68% of turnover (1H2003 87%) although this is now decreasing. Tullow also has production in Cote d’Ivoire, Pakistan and exploration interests in Gabon, Cameroon, Bangladesh, India and Romania.
Tullow’s purchase of Energy Africa in May has transformed the company into one of the largest players in West Africa. Proven and probable reserves now stand at 171 mmboe (million barrels of oil equivalent) (2003: 70 mmboe). An independent reserves audit on Tullow’s entire portfolio as at the year end will be carried out and the results of the audit are to be disclosed with the final results.
Some profit from Energy Africa was included in Tullow’s half year results but it contributed only a month’s earnings to them. The impact on the full year results will be much greater but the full effect of the acquisition will only be seen in 2005.
Profits from existing operations (excluding acquisitions) increased by 28.5% to £22.6m (1H2003: £17.6m), despite flat sales, due to lower depletion, amortisation and exploration costs.
The cash component of the Energy Africa acquisition was funded by borrowings and has pushed gearing levels (excluding the merger reserve) from 53.3% to 83.8% and interest costs by 28% to £3.8m, something that needs to be watched in view of the upward pressure on interest rates.
Tullow’s prospects look good, production in 2005 will be should grow by 20%+ due to the full impact of the Energy Africa consolidation. The addition of further production in the UK from the Horne and Wren project, the Munro development and the Schooner and Ketch acquisition which is to be completed in the first quarter of 2005 will boost output further. At 165.75p, Tullow has a prospective PE of 19× (for 2005), at the top of the sector, suggesting the market is taking quite a bullish view of the undoubtedly strong growth prospects. The yield is only 0.6% but is to be expected from a growth stock.
Random picks: Alliance and Leicester | Body Shop | Easyjet | Group 4 Securicor | Hiscox | Sainsbury | Tesco | Vedanta | Workspace | John Wood