Share issue allows Tullow to increase credit to $2bn

LISTED EXPLORATION and oil company Tullow is to increase its borrowing capacity to $2 billion after successfully raising £400 million from shareholders and new investors yesterday.

The group yesterday placed 66.9 million new shares with institutional investors at £6 each, raising a total of £402 million.

Chief executive Aidan Heavey said afterwards that the placing was oversubscribed and that it brought new investors to the company, including a number of “high-quality funds”.

He told The Irish Timesyesterday that the company intends increasing its existing $1.4 billion credit facility with its banks to $2 billion.

Mr Heavey explained that the group decided on yesterday’s fund-raising to strengthen its balance sheet. “In the current market we wanted to make sure that the company was well financed,” he said.

Tullow already sells 66,000 barrels of oil a day from existing productive wells, mainly in the North Sea. Over the last year, exploration in Ghana and Uganda yielded 17 discoveries from a drilling programme of 22 wells, results that Mr Heavey yesterday described as “phenomenal”.

Part of its interests in Ghana are due to come on stream this year, and will add 120,000 barrels a day.

Mr Heavey said yesterday that he was “not really” worried about recent falls in oil prices, which have toppled from a near $150-a-barrel high last July to around the $40 mark.

“Our projects will work right down to $25 a barrel,” he said. He argued that in any case, prices in the region of $40 a barrel will not last, as the medium- and long-term pictures show that there will be a supply shortage.

In a separate trading statement and operations update issued yesterday, Mr Heavey said that the share placing and the conclusion of its refinancing will secure funding for the group and leave it with significant financial and operational strength.

He described 2008 as the group’s “best ever”, significantly boosting Tullow’s reserves.

The statement points out that discoveries during the year boosted its reserves and resources from the equivalent of 551 million barrels of oil to around 800 million.

In Ghana, the appraisal of its Jubilee field identified a resource of up to 1.8 billion barrels, with a most likely case of 1.5 billion.

Tullow is working on the development of this and hopes that it will begin producing oil next year.

Wells in Tweneboa and Teak in Ghana and Ngassa in Uganda are targeting over 1.5 billion barrels; drilling is due to commence this year.

Tullow also made significant discoveries in Uganda, in Butiaba and the Lake Albert Rift basin, which has significantly exceeded the commercial threshold.

During last year, Tullow also raised £285 million from the sale of assets that were not central to its business.

However, the sale of an interest in the M’Boundi oil field in the Congo in west Africa will not now be completed as it could not get approval from the country’s government within a reasonable timeframe.