Company rejigs portfolio to concentrate on oil and buys exploration group Spring Energy Norway
Tullow Oil is pulling out of the north sea gas business at the same time as buying a Norwegian oil exploration company.
The company said it planned to sell its gas assets in the UK and Dutch north sea, saying they no longer fit with its focus on light oil.
But it is paying up to $672m - including a possible $300m bonus depending on success - to add Spring Energy Norway to its exploration and development projects in Ghana, Kenya and Uganda. Spring holds 28 offshore licences across Norway's continental shelf and has made six commercial discoveries from 12 wells drilled since 2008. Tullow chief executive Aidan Heavey said:
These transactions are part of an ongoing process of carefully refocusing our business and ensuring efficient allocation of capital by monetising non-core assets and re-investing the proceeds in high potential oil exploration.
But in the market Tullow's shares have slipped 68p to £11.88, making it the biggest faller in a fairly flat FTSE 100. There was some disappointment from an operational update from its Okure-1 well in Ghana although production from the Jubilee field had started. Analyst Simon Hawkins at N+1 Singer said:
The acquisition [of Spring] is a positive step forward in that it allows the company to focus on what it does best, i.e. high-impact exploration and shows that Tullow is actively managing its portfolio. Specifically it builds the company's ability to grow in Norway. Given the core focus of the company on basin opening high-impact exploration its UK assets have always felt non-core. The structure of the deal appears to give away some of the exploration prize.
Andrew Whittock at Liberum Capital kept a buy rating on the business, saying:
Tullow appears to be switching out of its mature UK portfolio into more prospective Norwegian assets. This should play to it's exploration strengths and, in time, open more opportunities to add value.
Overall the FTSE 100 is up just 5.02 points at 5926.65, ahead of news on the results of the Greek bond buyback after a noon deadline, extended from Friday. There is also nervousness following the political upheaval in Italy. Later the US Federal Reserve begins its latest two day meeting, with expectations of further quantitative easing.
Among the risers, Whitbread is 104p higher at £25.32 following a positive update, but Eurasian Natural Resources Corporation continued to fall, down 5.2p at 271p. Citigroup cut its recommendation from neutral to sell, and its price target from 350p to 170p.
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