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Business News of Monday, 12 May 2008

Source: — Financial Times/Daily Graphic

Ghana’s First Oil Pour -2010

The Chief Executive of Tullow Oil, Mr Aidan Heavey, has said that the company is on track to meet its target of producing the first oil in Ghana by 2010.

The company is among a consortium of oil exploration companies that discovered oil about 65 kilometres (about 1,000 metres) off the shores of Cape Three Points, which, although deep, is not unusually challenging by today’s standards.

Mr Heavey said the company had plans to develop its Jubilee Field well gradually, starting at a rate of about 60,000 barrels a day, at which point the cash will start to flow, helping to finance future investment to raise production to 250,000-300,000 barrels per day.

Developing the field should cost between $3 billion and $10 billion (£5.1bn), Mr Heavey told the Financial Times of London, but he rejected the idea that Tullow would either need to bring in another partner to help finance it, or make a rights issue, as several other smaller oil companies have done recently.

“We don’t intend to have a rights issue,” he said. “We are well positioned to finance our costs without going to shareholders.”

Tullow has already raised $700m from asset sales and plans to make enough to pay off its debts of £450m at the end of last year.

He told the Financial Times, that he thought oil had been found in Ghana at the right time, when the country stood to make the best of its windfall.

“The licence terms are very much in favour of the government,” he said. “They have done a very good job in getting good advisers.”

Some of the advisers were from the British and Norwegian governments, he said.

“It is a very well structured contract, and they have tried to make sure they are a case study of how to do these things properly,” Mr Heavey said.

The Tullow chief executive said the company was still being careful with its estimates, and that there was the tendency to upgrade them further.

“You have to be cautious with these things and you are better off having a constant flow of good news than putting out over-optimistic numbers and then having to claw them back,” he said.

“There is nothing worse for oil companies than to upgrade their estimates and then downgrade them later on.”

Shares in Tullow Oil, the exploration and production company, soared on Tuesday after analysts raised by 500 million barrels their estimates of the size of the field it has discovered off the coast of Ghana.

Tullow had held out the prospect that 2008 would be an important year for the company, and so far it had been living up to the expectations invested in it.

After rising 24 per cent, last week, Tullow shares have gone up by 158 per cent in the past 12 months and are more than 10 times their level at the start of 2004. The latest success came from Mahogany-2, an appraisal well drilled to assess the size of the Jubilee Field in Ghana, first discovered last year.

Having struck oil with that well, Tullow has been scaling up its estimates of the size of the field. Analysts said they had been guided to a central case estimate that the field held one billion barrels of oil, with a potential high case of 1.8 billion barrels, up from a previous central estimate of 480 million barrels with a potential top end of 1.3 billion.

While Ghana has been better at riding the storms of soaring fuel and food prices than some countries in Africa, being a net oil exporter would still be very welcome.