Tullow Oil released its FY 2013 results today. The most significant news is that the high impact Fregate Well in Mauritania encountered 30m of net gas condensate and oil pay but will be plugged and abandoned. There was no announcement on corporate activity
<b>Production </b> – There were no changes to the earlier disclosed FY 2013 production or the production forecast. Jubilee production is still expected to be 100k bopd for FY 201, less than the 130kbopd capacity due to gas handling. Although limited flaring may be allowed, it will only be to maintain production rates.
<b>Development </b> – There was no change to TEN development. The farm out process is yet to be completed. An MOU was signed with the Ugandan government agreeing a commercialisation plan. It includes a pipeline and refinery of 60k bopd capacity on a modular basis starting with 30k bopd. Although the announcement indicated some cost saving due to changes in development planning work, it did not quantify this.
<b>Exploration </b> – The most significant announcement is that the Fregate well in Mauritania reached target depth and encountered 30m of condensate and oil pay in the Lower Cretaceous. It is the first discovery in the Lower Cretaceous in the region and opens up a new play for further exploration. However, the well’s hydrocarbons were insufficient for testing and was plugged and abandoned. The results from the Butch East well in Norway will only be announced at the end Q1 2014. The Euko well flowed at 550 bopd, less than that achieved in other wells though all zones could not be tested. Etuko is a basin flank play compared to the company’s other basin fault plays which flowed at c. 5k bopd.
<b>Financial </b> – Unit operating costs rose 13% YoY due to lower production and maintenance costs at Jubilee. Net profit at $169m was higher than our estimate of a loss of $90 mainly due to a lower than expected tax expense. Net debt and capex were in line. The final dividend was unchanged at 8p per share (total for FY 13 at 12p per share).
Though positive for long term exploration in Mauritania, the lack of a commercial discovery at Fregate may disappoint the market in the short term. Fregate added 7p per share to our risked NAV for Tullow. We see current levels as undervaluing the company. Progress on its development programmes, further exploration success in East Africa and corporate activity should close the gap in our view. We will provide further details after the conference call.
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