Tullow poised for FTSE 100 after revealing more oil from Ghana

Tullow Oil is set to complete a rags-to-riches story and join the FTSE 100 index next week after revealing yesterday that it is sitting on a potential 1.3 billion barrels of crude in Ghana.

The group increased its best-case scenario on a recent discovery off the coast of the West African country by 500 million barrels at the same time as announcing that it may have found a new gasfield in Namibia.

Shares in Tullow rose 34p, or 6.6 per cent, to a high of 547p, valuing at £3.9 billion a business that was set up in Dublin in 1987 with just Ir£3 million of cash.

At its present market value, Tullow would automatically qualify for the FTSE 100 in next Wednesday’s quarterly reshuffle. It is likely to be promoted from the FTSE 250 alongside Carphone Warehouse and Taylor Wimpey, the housebuilder.

Aidan Heavey, the oil company’s chief executive and founder, said: “Tullow now has a far greater resource base and upside potential than at any time in the group’s history. The outlook for the company has never been brighter.”

As well as the Mahogany prospect in Ghana, Tullow has already this year found what could be another 1 billion barrel field in Uganda. Its shares have surged more than 30 per cent in the past three months alone.

Mr Heavey insisted that the FTSE 100 was “just another index”, but signalled that Tullow was likely to stay for some time, unlike Cairn Energy, which briefly became a blue chip after discovering oil in India.

Tullow yesterday increased its projected 2007 capital expenditure for the second time this year, to £415 million, to fund at least seven more wells in Africa, including two more off the coast of Ghana. The company believes that the Mahogany field holds at least 450 million barrels of oil and could hold 1.3 billion, making it one of the biggest discoveries of the year.

The group is also planning a “high impact” exploration drive in India and Pakistan in the fourth quarter.

In total the company has more than 120 licences around the world, including permits in French Guyana, Surinam and Trindad & Tobago.

City analysts said that the success in Africa and the potential for more had overshadowed a decision to hold the interim dividend at 2p to help to free cash. Half-year results yesterday also revealed that operating profits fell by 31 per cent to £111 million after a reduction in North Sea gas production and a fall in UK gas prices, but this was in line with expectations.

Andrew Knott, an analyst for Merrill Lynch, raised his estimated net asset value of Tullow by 31p a share to 568p. He added: “We continue to view Tullow as our core European exploration and production stock.”

Promotion to the FTSE 100 would mark a big achievement for Mr Heavey, who is widely respected in the City but has always admitted that he knew nothing about oil before he set Tullow up, naming the company after a village near Dublin. After talking to a friend at the World Bank, Mr Heavey took on a project to restore a series of gasfields near Dakar in Senegal and feed a power station in the country. The group floated a year later on the junior USM market at 10p a share.

After expansion across Africa, the North Sea and Asia, Tullow made two transforming acquisitions: Energy Africa in 2004 and Hardman Resources last year.

Mr Heavey said: “I was a chartered accountant and didn’t know a thing about oil. But if you think back to the mid1980s it was like the dot-com boom; there were a lot of oil companies in the North Sea and plcs were all thinking of setting up oil divisions.

“I got talking to a friend who was saying how the majors were giving up fields to focus on bigger projects and I said I’d be happy to have one in my back garden. That’s how it started really. Dallas was even the biggest show on TV at the time. I guess I just wanted to be like Bobby Ewing.”

Tullow poised for FTSE 100 after revealing more oil from Ghana - Times Online