February 12, 2014 / 7:47 AM / 6 years ago

UPDATE 3-Tullow shares fall as Mauritania exploration well disappoints

* Fregate-1 well in Mauritania is not a commercial oil find

* Tullow says new oil area is opened

* Says making progress in Kenya, Uganda

* FY op profit $381 mln, down 68 pct but tops f’cast $349.7 mln

* Shares fall 3.4 pct (Adds information on Uganda, updates shares)

By Sarah Young

LONDON, Feb 12 (Reuters) - Britain’s Tullow Oil Plc, under pressure to regain its reputation for successful exploration after a string of disappointments, said a key well in West Africa did not find oil in commercial quantities, sending its shares lower.

Shares in Tullow closed down 6.2 percent at 792.25 pence on Wednesday after the company said the Fregate-1 well off the coast of Mauritania was not a commercial find, but had encountered 30 metres of gas condensate and oil.

Analysts had been keenly awaiting the result of the well and had said a positive result would be a major boost for the company, after drilling setbacks in French Guiana, Mozambique and Ethiopia last year.

However Tullow, posting forecast-beating annual results, reported more positive news from its operations in East Africa, where it said it was making progress on two big, future developments in Kenya and Uganda.

“While unsuccessful, the result details reaffirm the potential of making a big oil find offshore Mauritania via the follow-on wells,” Morgan Stanley analysts said in a note.

Tullow said while not commercial by itself, the well opened up a new oil area, deeper than current gas fields off the coast of Mauritania. It is hoping to replicate in Mauritania the success it has had off the coast of Ghana, where finds of up to a billion barrels of oil helped cement the company’s status as a successful explorer in the last decade.

The company will now drill two more wells off the coast of Mauritania in an attempt to see if there is more oil there, enough for a commercial development.

“We had hoped for a commercial discovery here, providing an additional offshore ‘leg’ to the exploration story,” analysts at brokerage Canaccord said.

“We expect the East African program to continue to deliver success, but think an additional ‘leg’ is required to see further upside in the near term.”

Tullow’s shares have lost almost a third of their value over the last 12 months. In 2013 it was the biggest declining stock in the FTSE 100 blue chip index outside the mining sector.


Tullow, whose main oil production comes from Ghana, is in the process of trying to develop commercial oil finds it has made in Kenya and Uganda.

Since the doubling of its estimate of its Kenyan resources in January, Tullow said the Kenyan government’s approach to the project had strengthened and it was more focused on early development. Project sanction is expected in 2015 or 2016.

“The tone has very much changed locally and within government and they’re really pushing us,” Tullow Chief Operating Officer Paul McDade said in an interview.

In Uganda, where Tullow earlier in February signed a memorandum of understanding (MoU) with the government, McDade said that the company was confident of keeping development costs at the lower end of a $8 to $12 billion range.

Tullow was currently prioritising the Kenya project and could in future look to modify its holdings in Uganda if it finds more oil in Kenya, a spokesman confirmed.

The company owns one-third stakes in its Ugandan fields having in 2011 sold stakes to France’s Total and China’s CNOOC.

Tullow, having issued guidance for its 2013 revenue and profit in January, reported 2013 operating profit of $381 million, a 68 percent fall on the year but ahead of a consensus forecast of $349.7 million.

The fall against the previous year was a result of lower profits from disposals compared with 2012 and a higher exploration write-off, already flagged in the January update.

The profit beat was primarily due to a lower tax charge than analysts had calculated, the company said, particularly citing the benefit of deferred tax credits in relation to exploration writeoffs in Norway. (Editing by Paul Sandle, David Holmes and David Evans)

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