Tullow Oil will be releasing its FY 2014 results on Wednesday 12 February 2012. The company has underperformed over the last six months. Although we see the share as undervalued at current levels, the company needs to demonstrate value delivery through the drill bit or monetising its exploration and development portfolio. We expect the market to focus on any news on that front. The trading update released earlier disclosed its FY 2013 production and top line financial performance as well as FY 14 production outlook.
<b>Financial </b>– Top line figures (revenue, capex, net debt) were released with the trading statement. The bottom line will be affected by the $900m exploration write off ($730m net of tax). We expect the company to make a loss of c. $90 (cons. $69m). Adjusted for the exploration write off, net profit would be up 3% YoY.
<b>Production </b>– FY 2013 production was disclosed at c. 84k bopd and should be in line. Tullow is guiding FY 2014 production at 79 to 85k boepd (Merrion and cons. 81k boepd). The significant uncertainty will be Jubilee production which is currently producing below capacity due to inadequate gas disposal options. This should improve once gas processing facilities onshore are completed, possibly in Q3 2014. However, in the meantime, press reports have suggested that due to delays in onshore gas handling, Jubilee has been allowed to flare gas commencing end February 2014. If confirmed, this may improve the production rate allowing. Tullow may indicate what effect this may have on production guidance.
<b>Development </b>– We do not expect changes to TEN development. However, there might an announcement on a possible farm out partner. If not, it is likely to be one of the questions in the conference call Q&A. A farm out would cystalise the TEN valuation (Merrion $1.7bn). The Ugandan government has also announced that it has finally approved the development of its oil & gas in exchange for support for its refinery. The announcement was not clear on the size of the refinery (30k bopd scalable to 60k bopd or 60k bopd from the start). Tullow might provide further clarity on this.
<b>Exploration</b> – The most significant exploration news awaited is Fregate offshore Mauritania as success should open a new exploration basin. It is the first of 4 wells in the region and is targeting c. 290mmboe. It adds 7p/35p risked/unrisked to our valuation. Other expected exploration news includes Butch East in Norway (3p/14p risked/unrisked) and possible further exploration news from Kenya.

<p><h5>Muna Muleya</h5>

Disclaimer: www.merrion-capital.com/disclaimer

Merrion Stockbrokers Limited (registration no. 307878)
is a limited liability company whose registered office is at
Block C, The Sweepstakes Centre, Ballsbridge, Dublin 4, Ireland.