Tullow Oil is a FTSE 100 stock, with a market cap of £9bn. Not, then, a junior oil exploration company, or a fly-by-night with a couple of prospects. But what's interesting is that it offers a very different style of oil exposure from FTSE companions Bp and Royal Dutch Shell B - where the majors are actually beginning to exhaust their resources, Tullow is still increasing its resources with new discoveries.
Tullow's core area of operations is West Africa, where it is already producing in Gabon, Cote d'Ivoire, Mauretania, Congo and Equatorial Guinea, and has development programmes in Ghana and Uganda. Its success rate in the area has been almost 100 percent. It also has interests in the North Sea, South America, India, Bangladesh and Pakistan.
And unlike most of the juniors, it's profitable. Its profitability did fall at the latest interim results, as the result of lower production as well as a lower oil price. Turnover fell 23% - with 16% lower volume - and profits were down 81% [1] . But production should increase again in 2010, once the Jubilee field begins to produce, so this is a short term issue. (Jubilee is expected to start production in the second half of 2010, at a rate of 58,000 boepd – almost doubling the 59,265 boepd production of H1 2009 [2] .
However, it's not really current production you're buying Tullow for. Tullow could be transformed by the success of its exploration programme. New fields are important not so much for increasing production, as for the room they give the company for significant upgrades in resources, and consequent increase in the company's net present value.
In Ghana for instance the exploration programme in the Tano licence (of which Tullow, the operator, holds 49,.95%) and West Cape block continues to test plays close to the existing Jubilee field. (Jubilee itself might be more important than current figures show - further appraisal wells are being drilled in 2010, and the field could move on to a second production phase dependent on well results. But Mahogany-4 and Mahogany Deep-2 have to be drilled first, and rig availability is something of an issue, so further development is unlikely before 2011.) Teak-1, for instance, is testing plays up-dip from Jubilee; if hydrocarbons are found here too, that would increase the resources considerably. In March this…
