Takeover not in our best interests, says Tullow Oil chief

Heavey shifts Irish oil and gas explorer’s development focus to East Africa, writes Gavin McLoughlin

TULLOW Oil is best as a stand-alone entity, chief executive Aidan Heavey told the Sunday Independent.

Analysts have repeatedly flagged the company as a potential takeover target for a larger oil and gas explorer in recent times.

But Heavey told the Sunday Independent that the company hadn’t been approached and he believes the status quo is best.

“I think we are best as a stand-alone entity, we’re very much an Africa-focused business, it’s a very unique type of business in Africa, and I think we’ll add more value to shareholders by doing what we do best, which is focusing on Africa... we’re basically alone there now because most of our competitors are gone.

“There’s a lot of talk about major oil companies buying Tullow but the last few years have caused a dent in the pocket of most of the companies. Nobody has the cash any more, and we’re quite a big bite.

“I don’t think the majors will be able to match us in relation to speed of doing things, and there will be a lot of opportunities in this new era for oil.”

The company, which has a market capitalisation of £1.75bn and net debt of $4.7bn, is set to begin producing oil next month at a major project in Ghana known as TEN. Heavey wants to bring Tullow’s debt — which has attracted negative commentary from assets — down to around $4bn over the course of the next year.

“Our debt is not as bad is people think it is... we can handle the debt levels that are there at these oil prices and lower because all our commitments are finished in TEN,” he said.

“The bulk of the debt was built up because of the TEN project, now that TEN comes on stream, it adds 50pc to our production in West Africa and we’re very cash positive for the second half of this year, so our debt will naturally come down.”

Heavey said Tullow will also look to sell assets in places like Norway, the UK and Denmark when the market improves. “That will impact debt as well. So we can adjust our capital spend to suit our cash flow. With TEN finished, it transforms the ability of the business to do what it wants to do,” he said.

Its next target for development is in East Africa.

“It’s an onshore so it’s a less costly thing than TEN. TEN was a big, big project — you spend a lot of money up front and that’s where the bulk of our debt came from. Whereas East Africa is onshore so costs are a lot less and they’re easily funded out of cash flow.

“We have big percentage interests in East Africa so our long-term plan is, when we get to development stage, that we will sell down part of the interest in those to fund the development costs,” Heavey said.

The company posted a pre-tax profit of $24m in the first half, compared to a $10m loss in the same period last year. It lost $1bn after tax in 2015, fuelled by writing off $749m in exploration costs — with the industry hit by a plunge in oil prices.

Heavey (63) reiterated that at the very least he would see out the current oil cycle before looking to step down.

“I’ll see out this cycle — the cycle’s not over yet! I haven’t even thought about it. The focus is just getting the business back profitable again, and seeing out the cycle and getting through it. Hopefully by the end of this year we’ ll make further strides on that, we’re back to investing on the upside again which we’ ll be doing in the second half of this year.

“We’ve got, like any properly run business, plans in place for any eventualities of people leaving or whatever, so it’s not going to be an issue.”

He said that while most companies can be profitable with oil at $40-$50 a barrel, the price makes it difficult to do major developments.