One to Watch: Tullow spreads risks

Published on Thursday 5 November 2009 19:57

Tullow Oil 1,233p +23p Scotsman says BUY

TULLOW Oil is one of the largest independent oil and gas explorers in Europe.

Tullow was founded in 1985 and today it is one of the largest 100 companies trading on the stockmarket. The company produces 60,000 barrels of oil equivalent per day (boepd). In 2008, the group drilled 99 exploration, appraisal and development wells and achieved an excellent 77 per cent exploration success rate.

The company's key objective is to maintain consistent growth over the long term and, as a consequence, is diverse by design. The spread and balance of the business and assets limits its exposure and risk in any single asset or territory.

The business is balanced between oil and gas production in four distinct core areas, and more than 30 producing fields. The exploration programme balances relatively low-risk opportunities with high impact projects in developing regions.

As with any explorer, this is not a share for widows and orphans as the risks are above average but the success Tullow has achieved has been exceptional and is reflected in its share price, which has risen circa 80 per cent in 2009.

Tullow has a 34.7 per cent stake in the Jubilee field off the coast of Ghana. Kosmos, which owns 23.49 per cent of the giant field, is rumoured to be selling its stake to an oil major for north of $4 billion, which underpins the valuation of Tullow's interest. The entrance of such a strong partner into the joint venture would help to de-risk the assets further.

It is not out of the equation that Tullow itself could be snapped up by one of the oil majors looking for a high quality in-fill acquisition.

&#149 Craig Yeaman is investment director at Saracen Fund Managers. The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this stock for your portfolio.

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