Tullow Oil moved towards completion of its North Sea portfolio reshuffle on Tuesday, announcing the planned sale of its majority stake in the Hewett Unit gas fields and associated infrastructure to Eni of Italy for £210m.
The sale is part of an ongoing strategy by Tullow to beef up finances ahead of major development spends in Ghana and Uganda and will leave the company debt free.
Analysts said the sale price was exceptionally high. It amounts to more than Tullow paid for its entire UK portfolio.
Richard Rose at Oriel Securities said he had valued the assets at just £10m but Eni had probably paid the premium in order to develop them for gas storage.
Africa is now the main focus of development for Tullow, accounting for 55 per cent of production last year and increasing proportions of capital expenditure, some 75 per cent this year.
But Aidan Heavey, chief executive, said the southern North Sea remained a core part of the business, apparently ruling out putting all the company’s eggs in the African basket, although any future spend will be incremental only.
Alongside the announcement of the Hewett sale, Tullow said an appraisal well on one of the licence areas covering the giant Jubilee field offshore Ghana had been successful. Paul McDade, chief operating officer, said the Mahogany-2 well supported the view that each Jubilee well should be able to produce 20,000 barrels a day of high quality crude. Jubilee development has been put on the fast track with a target of first oil in 2010.
With asset sales worth around $1bn, Tullow has now eliminated debt accrued with the acquisition of Hardman Resources, a purchase that bolstered its African portfolio. The M’boundi field in Congo Brazzaville and a permit in Cameroon have been sold. Assets in Pakistan are on the block.
The sale of Hewett follows a smaller deal worth £35m in April when some CMS area assets were sold to Venture. Like other producers in the region Tullow’s North Sea assets are in decline at a time when costs are high. The volatility of gas prices adds complications to exploiting interests in fields.
Hewett was recently converted to unmanned operation to reduce costs but hopes of boosting production received a setback when the Doris prospect proved uncommercial. Tullow saw the long term future of the field as being gas storage.
Tullow shares rose 1.7 per cent in early London trading, standing at 935p.
Get alerts on Energy sector when a new story is published