ANALYSIS:TULLOW OIL'S maiden annual results as a FTSE 100 constituent fell short of analysts' expectations, but the company expects to make decisive gains in the next couple of years on the back of its promising exploration projects in Ghana and Uganda.

With oil prices still on the rise from the $100-per-barrel threshold breached only in January, production from the company's existing portfolio will deliver increased returns in the current period.

Every penny on the price of oil adds between £5 million (€6.5 million) and £6 million to the company's turnover, said finance chief Tom Hickey. The same goes for the price of gas, tightly linked as it is to oil prices.

Thus oil's more recent increases serve to improve the immediate prospects of Tullow's gas business in Britain, which suffered last year when the realised price per therm fell 19 per cent to 37.3p from 46.2p.

While Tullow reduced investment last year in its British gas assets, the price has now recovered to about 50p per therm. That's all in the short term.

Tullow is indeed on the march in the medium term, but there is still some distance to go before it starts to take the benefit of its exceptional exploration success in the search for oil in Africa over the last couple of years.

The key task now is to deliver product to market as soon as it can. With larger prospective inventories now in sight, the first oil is likely in Uganda in the second half of 2009 and in Ghana the following year.

Tullow already sees potential for more than a billion barrels of oil from each of these projects.

If chief executive Aidan Heavey achieves those results from these key prospects, 2007 will indeed prove to have been a transformational year for the business.

To get there, Tullow plans to invest no less than £325 million on its African business this year.

Already enjoying record cashflow from current operations, the company is evaluating "long-term" financing options with its banks.

The credit crunch won't help that effort, but Tullow said there continues to be "encouraging" bank support for deals in its sector.

Still, it was not all good news last year. While Tullow's 56 per cent success rate delivered the goods in Ghana, the downside from the unsuccessful 44 per cent was higher write-offs than expected and an erosion of profitability as revenue rose to record levels.