* Kenya basin could hold more than 1 billion barrels
* Tullow starts studies on plans to develop oil facilities
* Firm sees 2014 output at 79,000-85,000 boped (84,200 in
* Shares slip, analysts say Tullow must regain reputation
By Sarah Young
LONDON, Jan 15 Britain's Tullow Oil is
pinning its hopes on two new discoveries in northern Kenya to
turn the region into a significant crude producer and regain its
reputation as a successful explorer.
The group, whose main operations are in Africa but which
also has exploration licences from Uruguay to Greenland, doubled
its estimate on Wednesday of its discovery in Kenya's South
Lokichar basin to 600 million barrels following the two
successful well results.
Tullow made its name over the past decade opening new oil
areas in Ghana and Uganda, but after a string of disappointing
drilling results it lost a quarter of its value in 2013 and was
the worst-performing stock in the FTSE 100 outside the
The basin, one of eight in Kenya to which Tullow has
exposure, had the potential to hold over one billion barrels,
the company said. That compares with Uganda's estimated 3.5
billion barrels of reserves, which when production starts could
turn Kenya's neighbour into a top 50 oil producer.
"This is a very exciting area and this one basin alone looks
pretty good, if not better than Uganda," Chief Executive Aidan
Heavey said in an interview.
Heavey founded the group, which was worth over 14 billion
pounds ($23 billion) at its peak in early 2012, in the Irish
town of Tullow to tap into the potential of overlooked oil
fields in Africa.
Tullow shares rose 1.5 percent in early moves but were
trading down 0.3 percent at 854 pence at 1253 GMT, as the
success in Kenya was muted by a slightly lower than expected
production outlook for this year. The group - whose stock rose
to well over 15 pounds in 2012 - now has a market value of
almost 8 billion pounds.
Tullow is planning to drill 20 additional wells over the
next two years, giving it the potential to discover more oil in
Northern Kenya than it has in Uganda, particularly as it drills
in the other seven basins.
But analysts said the one-time investors' favourite, whose
stock quadrupled in value between 2007 and its peak, still had
work to do to restore its reputation.
Tullow shares traded at near highs after it first discovered
oil in Kenya in March 2012, meaning some of the potential for
the country is already included in the price.
"Kenya volumes will continue to grow, and if we add in a
good, frontier offshore discovery, that will get Tullow back to
the loved-explorer status from two years ago," Bernstein analyst
Rob West said.
Tullow is also drilling a well off the coast of Mauritania
which it says will be finished by the end of January. A positive
result could give the share price a major boost, say analysts.
Tullow said in a trading update that output next year would
be between 79,000 and 85,000 barrels of oil equivalent per day,
flagging that there would be little or no pick-up from the
84,200 it pumped in 2013.
"I think the positive from Kenya will be more important than
one year's slightly lower production," Liberum analyst Andrew
The mid point of the production guidance for 2014 is around
6 percent lower than analysts' expectations of around 87,000
boepd. The company blamed delays in putting gas facilities in
place on its main producing field in Ghana, Jubilee, for the
lower than expected output growth.
Tullow also said it was evaluating proposals to sell a stake
in another oil area in Ghana, the TEN project - a deal awaited
by analysts as it will help to cut future spending on that
development - but declined to give a timeline.
"We'll continue discussions until we get the maximum value.
It's ongoing. This is not something that's going to be quick,"
The 60-year-old Heavey, who became chief executive a year
after founding the group, said he had no plans to step down.
"I'm very happy here, as long as the company's happy with me,
I'm happy," he said, adding that the finds in Kenya meant it was
an "incredibly exciting" time for Tullow.
On his agenda will be maintaining relations with the local
community in Kenya. Tullow said it agreed with the government
and its Kenyan partner, Africa Oil, to start studies on
plans to develop facilities for extracting the oil and building
an export pipeline, with the aim of giving a development project
the green light in 2015/16.
The company faced community protests near its drilling site
in Kenya in October. It has since said it has learnt its lesson
and would avoid further disruption through more communication
and by explaining how local people would benefit from the oil
developments in time.
Providing guidance for its 2013 results, Tullow said that
annual revenues would be $2.6 billion, with gross profits of
$1.4 billion. It will announce full-year results on Feb. 12.