Tullow Profit Falls 68 Percent on Exploration Costs (updated)

Tullow Oil Plc, the U.K. explorer with the most drilling licenses in Africa, said earnings plunged 68 percent last year because of costs at wells that failed to find commercially viable reserves.

Profit from continuing operations fell to 50.9 million pounds ($103 million), or 6.96 pence a share, from 157.4 million pounds, or 23.67 pence, a year earlier, London-based Tullow said today in an e-mailed statement. Sales gained 10 percent to 639.2 million pounds.

``Earnings came in below our forecasts,'' Phil Corbett, a London-based analyst at ABN Amro Holding NV, wrote today in a report. Corbett reiterated his ``buy'' recommendation on the stock, citing ``a clarification of the near-term upside potential in both Ghana and Uganda, the company's key exploration assets.''

ABN estimated Tullow would earn 9.8 pence a share in 2007.

The company wrote off 64.2 million pounds in exploration costs, compared with 32.5 million pounds a year earlier, it said in the statement. Most of that was related to unsuccessful drilling in countries such as the U.K., Namibia and Cote d'Ivoire.

Tullow will focus on projects in Ghana and Uganda to help raise output to as much as 250,000 barrels of oil equivalent a day as early as 2010. Production advanced 13 percent to 73,100 barrels a day last year.

Spending Plan

The producer plans to invest 440 million pounds in projects this year, up from 370 million pounds last year, Chief Financial Officer Tom Hickey said today by telephone. Tullow will allocate more than 50 percent of that to developments in Ghana and Uganda.

``The level of cash-flow generation per barrel will remain stable'' during the exploration phase of projects, Hickey said. Cash flow last year rose 6 percent to a record 473.8 million pounds, the company said.

``Tullow was in the best position to add value'' last year, Chief Executive Officer Aidan Heavey said today in a telephone interview. ``The operating profit is down, but that has to be expected in the period when we are trying to step-change the business up to a new level.''

The board proposed a final 4-pence-a-share dividend, raising the total payout for 2007 to 6 pence, from 5.5 pence a year earlier. The dividend will be paid to shareholders as of April 18, Tullow said.

Dividend Increase

With ``cash available to the business, we've never been in better shape,'' Hickey said. ``Despite profit being down, we've actually increased our dividends.''

Tullow rose as much as 22.5 pence, or 3.6 percent, to 652.5 pence in London trading, the highest in two months. The stock was at 638 pence at 2:13 p.m. local time.

The explorer last year discovered the Jubilee field in Ghana with 1.3 billion barrels of potential oil and gas resources. Today, it said two offshore Ghana prospects, Teak and Tweneboa, may each hold 500 million barrels.

``We've been testing'' these deposits in Ghana, ``trying to see if that actually increases over the course of 2008 exploration,'' Hickey said. ``We are now getting ready to drill.''

The company said it won't reduce its forecast for resource potential in Uganda after last month deciding to suspend the Ngassa-1 exploration well and re-drill from another site. Tullow expects the new well to reach the Ngassa target, Hickey said.

Butiaba Reserves

New prospects in Uganda's Butiaba onshore region in the Lake Albert Rift Basin also have reserve potential ``in excess of a billion barrels,'' the company said.

Seismic studies at Butiaba ``revealed high density of prospects. We're also finding oil seeps in that area,'' Angus McCoss, an exploration director at Tullow, said today by telephone. ``We plan to drill all these prospects at the rate of about one per month.''

The first well at Uganda's Taitai deposit will be spudded in April, McCoss said.

Tullow is ``evaluating long-term financing options with the support of our bank syndicate,'' it said. The company plans to invest 325 million pounds in African projects this year.