Tullow Oil reaps bonanza from surging prices

RISING oil and gas prices and the full impact of Energy Africa on earnings has resulted in a sharp increase in turnover and profits at Tullow Oil.

Sales were up dramatically from £76m (€112.9m) to £201m (€298m) while profits before tax shot up to £91.4m (€135m) from the more modest £17.3m (€25.7m) in the first half of last year.

The acquisition of Energy Africa, completed last year has had a huge impact on the overall status of the group. It has more than doubled the size of the group, and the company says new management and organisation structures are working well.

An average of 57,350 barrels per day were produced during the period, more than double the same period last year.

It is forecasting an average of 60,000 barrels in the second six months of the year.

A further boost to the overall performance was the inclusion of three months of production from the Skooner and Ketch assets in the North Sea, acquired earlier in the first half of the year. Those deals resulted in Tullow producing record amounts of gas in Britain. About 40% of its total output is gas at this point and gas is the “fuel of the future” said Mr Aidan Heavey, chief executive, Tullow.

On oil and gas prices “people can forget about a return to prices of $40 per barrel or less”, he said.

“I indicated a price of $75 per barrel going into the future and I have no reason to change my view on that “, he said.

At best, prices will fall to $50 per barrel going forward, but the days of cheap oil are long gone, he warned. In the case of gas, prices still haven’t caught up with oil prices. The reality is more steep gas prices on the cards next year.

Rising prices are good news for Tullow, which plans to drill a further 10 wells in the North Sea over the next year and any future success will further add to the output of gas in the years ahead.

The company said it expected oil and gas prices to remain “exceptionally strong” for the rest of the year and shareholders will benefit from an interim dividend that has been doubled to 1p per share.

That’s extremely good news for the group where every $1 per barrel price hike adds £5 million a year to turnover and Mr Heavey is forecasting better years ahead provided the oil price holds.