Heavey is testing shareholder patience

AS the ivory hunter Kurtz in Joseph Conrad’s Heart of Darkness taught us, trying to capitalise on Africa’s natural resources can often lead to ruin. Tullow is sure that it can steer a different course. Yesterday it launched the biggest-ever equity raising for oil exploration and production (E&P), placing some £1bn worth of new shares (around 10 per cent of its enlarged share capital) to fund its operations in Africa.

Tullow remains confident that the Ugandan government will approve its $1.5bn buyout of Heritage’s share of the Lake Albert oil fields, after it pre-empted a sale to Italy’s Eni at the last minute. It will fund the initial deal with bridge financing, before bringing in a partner, with China National Offshore Oil Corporation (CNOOC) the current favourite.

It is unclear why Aidan Heavey’s Tullow needs to raise any cash, let alone this much: the bridge financing is in place until CNOOC or another partner buys in. The firm’s argument that it needs to fund a $500m-a-year exploration programme in Uganda – not the initial purchase – is premature.

Tullow is playing a politics, trying to show the Ugandan government that it is serious about becoming a long-term player in the region, that it is less interested in plunder than Conrad’s Kurtz.

In that sense, the fundraising was opportunistic, as the Ugandan government could still decide to approve a sale to Eni. Although the shares were placed at a 4.5 per cent discount to Tuesday’s close, Tullow has actually shed about ten per cent in the last week. And if the Lake Albert assets do go to its rival, Tullow share price is sure to fall further, leaving investors sitting on significant paper losses. Its message to the Ugandan government had better be well-received.