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Tullow down after £1bn share placing

TULLOW oil shares plunged yesterday after the company raised £1bn to fund expansion in Uganda where it hopes to gain government support for a major acquisition.

Shares fell as much as 5.6 per cent after the London-based oil explorer launched the placing.

The firm – which has more licences in Africa than any other UK explorer – placed 80.4 m shares in the market to bankroll further exploration and development in Uganda and Ghana.

Chief executive, Aidan Heavey, said: “What you are looking at is the next step up in the business.”

Heavey said he was confident the Ugandan government will back Tullow’s plans to buy Heritage Oil's 50 per cent stake in oilfields on the Ugandan side of Lake Albert for $1.5bn (£925m).

But Panmure Gordon analyst Peter Hitchens said: “We believe that Tullow is raising too much money and that this is diluting the exploration upside for shareholders.

“The company now looks overcapitalised and this could look worse should the Ugandan government not approve the company’s pre-emption on the Heritage Oil assets.”

Meanwhile the FTSE 100 group yesterday issued a trading statement which showed the company managed to hit its production target of 58,300 barrels of oil equivalent per day (boepd) in 2009.

It had predicted a fall in output during 2010 to between 55,000 and 57,000 boepd.

The group’s revenue also took a hit, slipping to £570m in 2009, compared with £692m in 2008, due to overall lower sales volumes and a sharp drop in commodity prices.

Tullow’s oil production sold at an average discount of approximately two per cent to Brent crude
throughout last year.

The company hit a record 87 per cent exploration and appraisal success rate in 2009 and had already notched up two successes this month. Its African assets continued to perform “strongly” in 2009, according to the trading statement.”

ANDREW OSBORNE
BANK OF AMERICA MERRILL LYNCH

ACTING as joint co-ordinators and bookrunners for Tullow Oil’s £925m share placing yesterday were the group’s two house brokers, Bank of America Merrill Lynch and RBS Hoare Govett.

Corporate broker Andrew Osborne, in the chair over at BoA Merrill Lynch, is one of the energy and power sector’s biggest-hitting advisers.

Osborne made his name at Hoare Govett, where he built its oil exploration and production team before being lured to Merrill Lynch in 2004 by then chairman Bob Wigley. Under his watch, the bank has advised almost all of the mid-cap E&P firms in the sector, including Imperial Energy, Premier Oil, Dana Petroleum, Soco International, Dragon Oil, Afren and Regal Petroleum.

Andrew Foster, RBS Hoare Govett’s managing director of corporate broking, is leading the team on the other side. Foster counts on his roster of past and current clients many of the world’s largest energy groups, including Centrica and Cairn Energy. Before joining RBS Hoare Govett, he was a senior manager at the UK Listing Authority.

In addition, BNP Paribas and Calyon acted as bookrunners, while Natixis was the co-lead manager.

Victoria Bates