Production delay in Ghana keeps the lid on Tullow share price

Production delays at its offshore Jubilee field in Ghana kept a lid on the share price of Tullow Oil following a trading update yesterday, despite the company surprising investors by doubling its estimate for the oil reserves contained in another field in Kenya.

Tullow said it was in talks with the authorities in Ghana to find a solution to the delays, after announcing that the field wouldn’t hit full production until the second half of the year.

The delays stem from the Ghana National Gas Company (GNGC), which is working to bring an onshore processing plant onstream. It says the plant will not be ready to receive gas from the Jubilee field until later in the year. Tullow said alternative, interim options to export the gas from the field were “being discussed” with the authorities in Ghana.

The massive field has the capacity to produce 120,000 barrels per day of oil equivalent, which includes the gas. The delays have capped production at about 100,000 barrels per day, and the company said in its update that this would be the average for next year, even after full production started in the second half of the year.

Meanwhile, the company doubled to 600 million barrels of oil its estimate for the reserves in the South Lokichar basin in Kenya. Tullow has struck oil seven times in a row in the region, leading to speculation that it could turn into an important oil-producing area.

The company said it expected to deliver “strong revenue and gross profit growth” in its 2013 results, due next month. It said it would generate cash flow of $1.9 billion for the year, although it also announced writedowns of $730 million after a series of drilling disappointments over the last two years. Tullow shares closed at 863p in London yesterday