Tullow Rises After Boosting Output Forecast on Africa Fields

ACCRA (Capital markets in Africa) Tullow Oil Plc jumped to a five-month high in London trading after raising its oil-production forecast for the year.

The company expects net production of 85,000 to 89,000 barrels a day from its West African operations, up from 78,000 to 85,000 barrels a day, according to a statement. Performance from the Jubilee and Tweneboa, Enyenra and Ntomme fields off Ghana has been “strong,” it said. It raised its free-cash-flow estimate to about $400 million.

The shares climbed as much as 3.7 percent to the highest since May 26, and traded up 2.1 percent at 204 pence as of 10:14 a.m. local time. That’s the best performance on the Stoxx Europe 600 Oil & Gas Index, and reduces Tullow’s decline this year to 23 percent.

The leap in the stock will provide further relief to the U.K. explorer and producer, whose shares have been slowly recovering amid the recent rise in oil prices following a collapse during crude’s crash. A recent maritime-border ruling in west Africa, where the company derives almost all of its production, allows Tullow to boost drilling off Ghana next year.

Production at the TEN field has been above 60,000 barrels a day since the middle of the year, Chief Financial Officer Les Wood said in a phone interview Wednesday. Tullow expects average daily production to exceed its previous full-year guidance of 50,000 barrels.

Wood reiterated the company’s intention to drill a further 13 wells at TEN after having already drilled 11. Work will start early next year.

Tullow raised 2017 net production guidance for its other Ghana field, Jubilee, to 38,400 barrels a day, which includes production-equivalent insurance payments. That increase is in part because of a decision to defer works at the field to early 2018.

The improved output forecast comes after oil prices in London staged a 42 percent recovery since this year’s low in June.

“As an oil-price levered producer, we expect the stock to take its lead from an improving oil-price outlook,” James Hosie, an analyst at Barclays Plc, said in a note Wednesday.

A “key message” from Tullow’s trading update is also the upward revision to its full-year free cash flow guidance, which had previously been about $250 million, Hosie said.

The company has been able to take advantage of oil price “firming” by hedging, and so far has a secured a floor price of $51.29 a barrel for next year. About half of its 2018 output has been hedged so far with a goal to hedge a further 10 percent before the end of the year, Wood said.

Although Tullow is generating more cash from its operations, a return to paying a dividend isn’t yet a priority although it’s an “aspiration,” Wood said.

Source: Bloomberg Business News