Tullow Oil writes off Sh35b in costs, sinks into red

Money Markets

Ngamia 1 oil rig in Turkana County that is owned by Tullow Oil. Photo/FILE 

By RON BOUSSO, Reuters

Posted  Wednesday, July 30  2014 at  12:40

In Summary

• The British energy company is counting on drilling projects in Kenya and Ethiopia to improve its exploration performance.
• A bad run of oil wells exploration in Mauritania, Ethiopia and Norway translated into a half-year net loss of $95 million.
• Tullow has had 14 successful well results and eight dry holes so far this year, mostly in East Africa.

Tullow Oil Plc drifted into the red after writing off more than $400 million (GBP236 million, KShs35 billion) in exploration costs, but the Africa-focused explorer remained confident that its strategy will pay off.

 

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The British energy company is counting on drilling projects in Kenya and Ethiopia this year and next to improve its exploration performance.

A disappointing run of oil wells exploration in Mauritania, Ethiopia and Norway over the past six months translated into a half-year net loss of $95 million (KShs8.3 billion) because of $402 million in write-offs.

"Exploration is a risky business... You have periods where you don't find oil and if you keep at it over a period of three to five years you generally have the success that we've had, so we are not overly concerned," Chief Executive Aidan Heavey told Reuters.

"Our basic strategy is to find around 200 million barrels of oil a year and we've done that very successfully over the last seven years and we are pretty confident we'll do it long term."

Tullow has had 14 successful well results and eight dry holes so far this year, mostly in East Africa, exploration director Angus McCoss said.

In Kenya, Tullow has made oil discoveries in 9 of 11 wells in the Lokichar basin where it has raised discovered resources to 600 million barrels of oil. It plans to drill wells in three new onshore basins in the country.

READ: Tullow sets 2017 for Kenya’s crude oil output.

"Kenya has a dozen basins and we've only really explored one of them intensively so there is a lot of scope to repeat the success that we've had in the South Lokichar Basin," McCoss said.

Oil discoveries in Uganda and Kenya and gas deposits found off Tanzania and Mozambique have turned east Africa into a hot spot for hydrocarbon exploration.

The governments of Kenya, Uganda and Rwanda have signed a Memorandum of Understanding (MoU) in February on the construction of an oil export pipeline from Uganda through Kenya.

Tullow reported a net loss of $95 million for the six months ended June 30 compared with a net profit of $313 million (KShs27 billion) a year earlier. Revenues fell 6 per cent to $1.265 billion (KShs111 billion).

It said production fell 12 per cent in the first half to 78,400 barrels of oil equivalent per day (boepd), short of its full-year production guidance of 79,000-85,000 boepd. Tullow's shares traded 0.589 per cent lower at 758.50 pence on the London Stock Exchange by 0750 GMT.

READ: Tullow, Africa Oil announce fresh oil and gas finds.

Production at its flagship offshore Jubilee oil field in Ghana averaged 103,000 barrels per day (bpd) in the first half of 2014, slightly above the group's full-year production goal. Tullow holds a 35.5 per cent stake in the Jubilee field.