Tullow accelerates development in Ghana

Tullow Oil ramped up its capital expenditure for 2008 for the second time in recent months as it accelerated development of its major discoveries offshore Ghana.

Aidan Heavey, chief executive, said the increase was “activity not inflation driven”.

In a trading statement Tullow said on Wednesday that capex for the year would be £480m, heavily weighted towards the second half. In March it raised the estimate by 10 per cent to £440m.

Some 45 per cent of the money will go on production and development and the rest on exploration and appraisal.

Africa accounts for 75 per cent of the spend and continues to grow in importance to the company even before potentially transformational projects in Ghana and Uganda come to fruition.

Overall production rose just 1 per cent to some 71,000 barrels of oil equivalent a day over the past six months but African production increased 6 per cent and accounts for well over half of output, despite the sale of a stake in the Mboundi field in Congo Brazzaville. By contrast, UK output dropped 13 per cent.

Further drilling offshore Ghana and Cote d’Ivoire will commence in September and “has potential to deliver significant upside over the next 12 months”. In May, analysts boosted their reserve estimates for the Jubilee field by 500m barrels when the results of the Mahogany-2 well were announced.

First production from Jubilee, which is now seen as a multi-phase development, is still set for 2010. Tullow now says it is also planning early export of gas from the field to the Ghanaian market.

The other major string to Tullow’s African bow is Uganda where exploration work is continuing. First production of 4,000 barrels a day from the Lake Albert region is still planned for 2009. News from the Kingfisher prospect is expected next month.

Richard Griffith, oil analyst at Evolution Securities, said one well result a month could be expected from Tullow to the end of next year and that each succeess built confidence in the company’s geological models.

Although the company’s production scarcely rose in the period and is not expected to increase significantly in the second half as UK output continues to decline as fields deplete, prices have come to the aid of cash flow.

Realised gas prices that slipped 19 per cent in 2007, pulling company profits down, have increased by some 30 per cent this year, as have realised oil prices.

Phil Corbett, oil analyst at ABN Amro, noted that Tullow’s net debt has fallen so that with strong cash flow and proceeds from disposals, finances looked robust.

Tullow, which reports interim results on August 27, said just £15m of the expected £400m profit from recent disposals will be booked for the first half. A £25m exploration write off is forecast.

In early London trading, Tullow shares, which have risen 64 per cent over the last year, rose almost 2.5 per cent to 894.5p.