Oil and gas giant Tullow Oil on Wednesday posted a four per cent rise in annual profits, exceeding market expectations, on the back of strong sales and output.

Profits before tax reached $1.11bn for the year to December 31st, up from $1.07bn the previous year - analysts from Investec were expecting a figure closer to $1.05bn.

Results were boosted by sales revenues of $2.34bn, a 2% increase from $2.30bn in 2011.

However, basic earnings per share fell 5% from $0.72 to $0.68 while dividends remained unchanged at 12p.

The FTSE 100 company said it flew in the face of a volatile oil price due to political uncertainty and economic downturn, as it averaged $108 per barrel, in line with 2011.

Progress edged ahead in offshore operations in Ghana including the Jubilee field and Tweneboa-Enyenra-Ntomme (TEN) Cluster Development as well as new entries into Africa, Guinea, Greenland, Uruguay and Mozambique.

The Jubilee field is producing around 110,000 barrels of oil per day following successful well remediation.

During the year, the company appraised the TEN development and submitted a Plan of Development (PoD) in November. Approval of the PoD is expected in the near future, Tullow said.

The group also made a major basin-opening discovery in Kenya - the Ngamia-1 and Twiga South-1 wells.

The later flow-tested at a combined rate of 2,351 barrels of 37 degree API oil from two zones.

"[Last year] was a year of major progress for Tullow," said Chief Executive Aidan Heavey.

"We materially enhanced the business with a basin-opening oil discovery in Kenya, by adding highly prospective new licences in Africa and the Atlantic Margins, refinancing our debt and partially monetising our Ugandan assets.

"The Jubilee Field in Ghana is now approaching its full potential and provides the base for our production profile and operational cash flow."

He said the company's financial position underpins an ambitious 2013 exploration programme which has high-impact wells planned in Kenya, Ethiopia, Norway, Mauritania, Mozambique, Côte d'Ivoire and French Guiana.

"This focus on exploration-led growth, together with active portfolio management and Tullow's strong balance sheet, provides an excellent platform for growth in 2013 and beyond."

Shares rose 4.66% to 1,235.00p at 08:56 Wednesday, as investors reacted positively to the results.

Analysts at Canaccord continued to view the valuation of Tullow Oil as "not particularly attractive" after the oil and gas giant posted its annual results Wednesday.

The group reported a 4% rise in profits before tax of $1.11bn for the year to December 31st, up from $1.07bn the previous year

Sales revenues increased 2% to of $2.34bn year-on-year.

Share rose 4.32% to 1,231.00p at 13:42 after the results.

Canaccord said the market reaction was promising given a disappointing announcement about a dry well at Sapele, offshore Ghana and a lower than expected plateau rate at the Tweneboa-Enyenra-Ntomme (TEN) Cluster Development.

"Next important news is the Sabisa well, onshore Ethiopia, currently drilling," it said.

"This will be an important well, bracketing the potential to the north of the Kenya-Ethiopia trend. This well is being drilled in a separate basin from those drilled to date."

The broker added that Tullow trades with 39% downside to its central net asset value(producing and development assets) compared to the likes of Premier with a 22% upside.

"However, Tullow has been a big underperformer, underperforming Premier by ~23%
YTD and we expect a bit of a bounce today with the potential for some short
covering."

RD

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