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Tullow Oil slides more than 5% after production update disappoints

Tullow forecasts record revenues for 2011 but daily oil production figures come in below expectations

Tullow Oil is on the slide after the exploration group revealed disappointing production figures.

The company, which is working on projects in the likes of Ghana and Uganda, said production averaged 78.200 barrels of oil a day in 2011 and would average between 78,000 and 86,000 barrels in 2012. But these figures are below City expectations of 80,000 last year and at least 90,000 in the current year.

Tullow said it expected record sales of £2.3bn for 2011, but the production figures have taken the gloss of this news and the company’s shares are down 82p at £13.73, the biggest faller in the FTSE 100. Even news that Shell plans to team up with Tullow to explore for oil in the Atlantic was little help. Andrew Whittock at Liberum Capital kept a hold rating and said:

The trading update discloses a new Ntomme oil discovery offshore Ghana but indicates production in 2011 slightly below consensus, lower production guidance for 2012 than we expected and potential slippage to key medium term developments in Ghana and Uganda. No real progress with Ugandan disposal agreement. Active drilling programme this year but investors focused on delivery will be disappointed as asset value falls.

Will Arnstein at FinnCap was more negative:

Tullow again reported weaker than expected production as the company struggles with both declining volumes at mature fields and problems at Jubilee, and these issues look set to continue into 2012. While an active exploration and appraisal programme helps deflect these problems, there is less upside potential available than elsewhere in the sector, and as such we retain our sell rating.

But Peter Bassett at Westhouse Securities still recommended the company, not least for its takeover potential:

Teething problems at Jubilee appear to be resolved but at a cost in both lower production and remediation expense. Meanwhile, the completion of the Ugandan farm-out, after significant delay, seems to have entered the final straight. Although the shares have reacted negatively to today’s update, Tullow remains a high-quality African play with significant takeover appeal, given its combination of production, near term development projects and exploration upside. The group’s successful exploration and appraisal track record suggests that another full year of drilling has the potential to deliver further resource gains, making Tullow one to watch in the year ahead. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds