Tullow strengthens its North Sea hand

Tullow Oil has strengthened its North Sea business by buying Nuon Exploration and Production for €300 million (£260m).

The acquisition, from Sweden's Vattenfall Group, brings Tullow a portfolio of 25 licences in more than 30 producing fields.

The firm said the new assets would increase its North Sea gas production by 9,000 barrels of oil equivalent per day (boepd), to approximately 23,000 boepd, and add reserves and resources of 28 million barrels.

Chief operating officer Paul McDade said: "This acquisition is a natural fit with Tullow's southern North Sea portfolio and materially enhances our potential for growth in the Dutch sector, an area with significant opportunities and a stable tax regime."

The portfolio includes a number of near-term development and exploration opportunities which Tullow said had the potential to sustain and grow production in the short term.

The move took the market by surprise as Tullow had been concentrating on high-risk exploration.

Richard Griffith, analyst at Evolution Securities, said Tullow's North Sea portfolio had been viewed as a likely disposal candidate as more cash resources were put into exploration in Uganda and West Africa.

"The strategic justification for the acquisition must be consolidation and cash flow enhancement in the event that North Sea gas prices start to rise," he said.

"Some exploration upside may exist but Tullow has given no sense of any scale.

"This is probably a sound deal but relative to the exploration leverage in the rest of Tullow's portfolio the deal is unlikely to thrill the market."