Tullow posts better-than-expected results, to press ahead with Uganda projects

Tullow Oil has announced an after tax profit of $30 million for the first half of 2016, defying analysts’ expectations that low oil prices would hurt its bottom line.

The profit is Tullow’s first in three years, and a reflection of the success of its cost-cutting measures which helped the company withstand a shutdown at its Jubilee oil field (Ghana) and lower oil prices. Administrative expenses fell by 32%, from $100 million in the first half of 2015 to $68 million.

The company’s results report affirms that oil production in Kenya could start as early as 2017 should its early oil pilot scheme be approved by the government. That time frame does not extend to Uganda, however, where feasibility studies on oil production and the pipeline’s construction are expected to start in the first half of 2017, the report says.

Tullow stock was recently downgraded by analysts at Macquarie and Goldman Sachs because of its high debt obligations – today’s statement says total net debt is $4.7 billion against free cash of $1 billion – and Uganda’s decision to build its pipeline through Tanzania instead of Kenya, which Tullow would have preferred.

Analysts thought that Uganda’s decision was not in Tullow’s best interests as it would overstretch the company. The best solution, according to Macquarie, was for Tullow to sell its Ugandan assets and instead focus on Kenya, where progress has been faster.

If it is indeed considering quitting Uganda, the half-year statement does a good job of keeping it under wraps. The statement says Tullow is positive that the Uganda government will soon approve its field development plan, and indicates that Tullow is moving ahead with its Ugandan projects.

Other than the company’s improved financial position, the other highlight of the results is the announcement that its flagship field in Ghana will start production next month, increasing the group’s production by 60% at the end of this year.