Analysis of Tullow Oil Plc Company


Tullow Oil Plc explores, develops, and produces gas and oil properties in Europe, South America, Africa, and South Asia; it has about 100 licenses on exploration as well as production in 22 nations (, 2011). The firm’s primary assets include Odum, Teak, Jubilee, Enyenra, and Tweneboa fields in Ghana and Lake Albert Rift Basin located in Uganda (, 2011). The company held 1.509 billion oil barrels equal to contingent and commercial resources on June 30, 2011 (, 2011). The firm was established in 1985 with its head office in London, UK (, 2011).


Tullow’s business operations are international and extend from South Asia, Africa, South America to Europe; its average production on its working interest was 58,100 bopd in 2010. This made it the biggest independent gas and oil explorer as well as producer firm in Europe (, 2011). The firm has a huge global portfolio of production and exploration assets with business interests in about 23 nations; in the year 2010, the company as a group attained an 83% Appraisal and Exploration success rate (Tullow Oil Plc, 2010).

Recently, the company has been focusing on the major projects and investments in Uganda and Ghana, which alongside another exploration portfolio in Africa, make it the leading independent company in the oil industry in Africa (Omojola, 2010). The Jubilee field in Ghana was identified in 2007 and started producing oil in 2010; Jubilee is an outstanding oil field with up to 1,000 million (160,000,000 m3) oil barrels with recoverable resources (Tullow Oil Plc, 2010). Besides Jubilee, the 2 licenses present considerable additional exploration possibilities that are presently being surveyed; apart from these investments, the company has upgraded its infrastructures in Accra as well as made more investments with the local contractors. So far, it has built a new head office as well as modern staff buildings in 2009 and in Takoradi (, 2009).

Through its three licenses that were earned through the purchase of the Energy Africa in 2004 and afterward of the Hardman Resources in the year 2007, the company has interests in Uganda, Lake Albert Rift Basin. Oil resources amounting to 1,000 million have been identified to date, and with numerous wells projections to be drilled, the firm deems that the basin still has extra 1,500 million barrels of the oil to be discovered (, 2009). This year, 2011, the firm has embarked on a superior-impact exploration promotion together with opening Liberia’s basin wells. In addition, the firm has purchased twenty-five North Sea Gas Fields from Dutch land along with making the considerable discovery of oil in French Guiana among Zaedyus as well. These investments were made possible by the strong performance in 2009 as well as a good start in 2010, which have made the Group go on with creating development and material exploration opportunities. The growth of the company in the future is well supported by a considerable strong capital structure as well as the Group’s strong performance prospects. Therefore, these investments increase the shareholders’ value by increasing the future dividends as well as capital gains earned from increased share price (, 2009).

Capital structure

In 2009, a refinancing of $2,000 million was secured and an additional $0.25 billion for a corporate facility. A total of £1,300 million as equity was raised in two successful places in 2009 and 2010. Besides the expected Ugandan farm-down, the company will have effectively restructured the statement of financial position and established a medium-term capital structure. The share capital was grown by 9.9% in 2010, and it also increased the facility commitments like Reserve Based Lending from $0.5 billion to $2.5 billion. In 2010, another facility, Revolving Corporate, was increased by $350 million in the month of October and a further $50 million in the month of December to $650 million (, 2010).

On the other hand, the company has debt facilities worth $3.15 billion, and when the expected Ugandan farm-down earnings are combined, the balance sheet is strengthened supporting Tullow’s strategy of the following. First, it is necessary to hold $500 million to $700 million for the exploration programme every year as well as to develop long-range exploration alternatives. Second, it promotes the Ugandan development with the possibility of new partners CNOOC and Total, and finally, the strategy continues with the Jubilee Phase 1a expansion following successful initial production from Jubilee field with completely appraised and developed Enyenra and Tweneboa discoveries (Tullow Oil Plc, 2010).

The company will focus mainly on remaining on superior-impact exploration promotions financed increasingly by the cash flow from operational activities and by choosing the best development as well as portfolio activity. The company may seek other financing options in the future in order to diversify debt financing sources when appropriate (, 2011).

A company’s capital structure is a specific mixture of equity, debt as well as other financing sources that it utilizes to finance its long-term funding. Mainly, capital structure is distributed between equity and debt. The percentage of the debt financing is normally measured by leverage or gearing (, 2011). Thus, Tullow Oil Plc has this kind of capital structure. For instance, in 2011, 2010, and 2009, the company had a gearing ratio of 70.69 % (as of June 30, 2011), 50%, and 47% respectively (Tullow Oil Plc, 2010:, 2011).


The company’s dividend policy is given great chances to raise the value of the shareholders if it keeps investing in its assets portfolio, mainly in Uganda and Ghana, and the company’s Board believes that it is important to retain the 2008 final dividend level. In 2009, the Board offered a final dividend per share of 4.0 pence, thus the overall payout per share increased to 6.0 pence compared with the 2008 payout of 6.0 pence. After the year 2007, the company changed the period of paying the interim dividends from June to May, and it’s currently paying its final dividend in November (, 2011). In 2008, interim and final dividend amounts were 4.0 and 2.0 pence respectively while in 2009, the same amount and proportion were paid in the same period. The portion of the dividend worth 4.0 pence was paid on May 21, 2010, and the remaining 2.0 pence was paid on November 4, 2010, to the owners on April 16 and October 1, 2010 register. In the current year, 2011, the dividend amount proposed by the Board increased to a total payout of 8.0 pence with equal interim and final dividend payment of 4.0 pence on the same period as above (, 2011).

Therefore, the company is practicing a constant payout of the dividends of 6.0 pence which changed in 2011 with an addition of 2.0 pence. Dividends do matter because the stock value depends on the anticipated future dividends’ present value. On the other hand, dividend policy, which is a decision to reimburse dividends and retain a certain proportion for reinvestment, does not matter because in theory if the company decides to reinvest the capital, the capital will grow and the firm will be able to pay superior dividends in the future (Baker and Wurgler, 2004). The company has a positive dividend trend which means that the management feels that it will be sustained or anticipate superior future dividends, or the present value will increase and indicate that the firm is healthy and growing (Ross, Westerfield, and Jordan, 2007).

Share price
Chart 1: Share price

Chart 1 indicates that the share price of the Tullow Oil Plc stock was very low in the year 2006, and it has increased progressively up until June 2, 2008, and in that duration of the share price, the positive trend shows a bullish trend meaning that most of the investors in the market dealt with the buying activities of the firm stock due to its low price until it attained its highest point of GBP 890 (, 2011). The increase in price may be also a result of many investments the company is engaged in, and the investors anticipate that the share price will increase in the future as a result of growth in the company. The stock price increases may have grown due to dividend policy in that the management anticipates that the company will be able to pay higher dividends in the future and that they will be able to sustain it as a result of the positive signal of the firm’s growth (Ross et al, 2007). This led to the level raise of dividends as discussed above, the firm’s dividend payout has a growing trend meaning that the company anticipates increasing its earnings in the future. With this in mind, many investors opt to buy the shares, and that’s why the chart has a bullish trend before June 2, 2008. Alternatively, the increase in share price may be a result of several investors preferring small amount of dividend payouts or even superior dividend payouts, and this may be the reason why these types of investors were attracted to purchase Tullow’s stock which was offering a small or huge amount of payout as dividends based on the individual shareholders’ investment policy (Kennon, 2010).

The price started to decrease after June 2, 2008, until November 3, 2008, attaining a low price of GBP 522.5; this means that the investors were selling their shareholding leading to a reduction in share price since there were many sellers, and the buyers and the forces of demand-supply were playing their parts. Since December 1, 2008, the price had an increasing trend just like the former situation (, 2011).

Based on Table 1, the investor holding his/her own investment for five years from 2006 to 2010 earned on average 2.91% as a return and was facing a high risk as measured by the standard deviation of 10.36%, but the level of risk depends on the investor’s investment policy that is the amount that he/she can bear loosing in case the investment does not perform as anticipated. Therefore, in this case, it is assumed that the 10.36% is very high for an investor whose risk tolerance level is 5.5%.


Tullow Oil Plc is anticipating high growth in the future as a result of investment in Uganda and Ghana in its quest to promote the exploration portfolio as well as increase the shareholders’ value. These investments need financing, and that is the reason why the company has a combination of both equity and debt, which it adds as need arises. All of these are geared towards future growth of the firm, and as a result, the Board proposes to increase dividends as the firm will be able to sustain it in the future due to its growth potential. This increase in dividend as well as potential growth of the company has led to the raise in interest in the firm’s stock which eventually led to increase in the share price.


Baker, M. and Wurgler, J. 2004. A catering theory of Dividends. The Journal of Finance, Vol. LIX, No.3:1125-1166. 2011. Tullow Oil Plc (LS: TLW) Web. 2011. Tullow oil plc (TLW.L). Web.

Kennon, J. 2010. Determining dividend payout: When should companies pay dividends? Online] Web. 2011. Capital structure. Web.

Omojola, B. 2010. Where money does the talking. Web.

Ross S., Westerfield, R. and Jordan, B.,2007. Dividends and dividend policy. 8th edition. New York, MxGraw-Hill Companies Inc.

Tullow Oil Plc. 2010. Enhancing Financial Flexibility. Web., 2009. On track: Jubilee special feature. Web. 2011. Tullow Oil plc: strategy, SWOT and corporate finance report- new company profile. Web.

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