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December 11, 2012 1:08 pm
Once an oil explorer, always an oil explorer. Tullow Oil’s purchase of a chunk of virgin exploration territory in Norwegian waters partly answers the question of what a successful oil exploration company does next. The acquisition of Spring Energy Norway, announced on Tuesday, comes after a period of quiet for Tullow and the odd mildly disappointing drilling result. In fact, with its Jubilee field in Ghana ramping up, Tullow was starting to look as much a producer of oil as an explorer. The move into Norway is a reminder of what it does best.
Tullow will pay nearly $400m for private equity-owned Spring, and a further $300m if its exploration plays, which include the Norwegian, North and Barents seas, deliver maximum results. The deal is pricey, though it is worth remembering that the Norwegian North Sea is the location of Statoil’s giant Johan Sverdrup oilfield, discovered in 2011 and one of the biggest finds of recent years (it could have up to 2.5bn barrels of oil). At the same time, Tullow is selling gas interests in the UK and Dutch North Sea, which house broker Barclays estimates are worth $500m, and has selected a preferred bidder for some peripheral Asian assets.
Tullow has a record of finding oil: it made big discoveries in recent years in Uganda, Ghana and (in 2012) in French Guiana. That delivered riches for investors and a premium rating. But it is starting to lose that rating now after the recent lull in activity. Its share price has fallen by a little over a quarter since hitting an all-time high in February; the fall includes a 5 per cent tumble on Tuesday as investors seemed to give more attention to drilling results from Ghana than the Norway move.
The Spring Energy purchase is the sort of potentially high-impact play that has rewarded Tullow investors handsomely in the past. Given how enduring North Sea resources are proving, it could do so again.
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