LONDON (Dow Jones)–FTSE-100 oil explorer Tullow Oil PLC (TLW.LN) is named after a small town in County Carlow, but that is where the connection with the Emerald Isle ends.
Ireland’s first oil baron has never actually struck oil on home turf. Instead, for the last 26 years Aidan Heavey has been blazing a trail in Africa, developing enduring trade links with governments in countries where many of his competitors feared to tread.
For a man with no background in geology, a chartered accountant who previously worked in the airline and engineering sectors in Ireland, Heavey does not fulfil the usual criteria of an oil magnate. Yet he has managed to create one of the most powerful oil companies in Europe.
So what is the secret of success in one of the world’s harshest trading environments? “You need to be committed to using local people and managing those employees on a longer basis. Oil and gas companies are working in areas involving billions of dollars of investment–it’s an enormous sum of money compared to local salaries, so it’s important we work closely with local people,” Heavey says.
The 57-year-old founded the company in 1985, and has built it from humble beginnings to its current international status.
Last year was transformational. Pre-tax profits rose to $152 million (GBP94 million) from GBP33 million in 2009, while revenues rose 19% to just over $1 billion, from GBP916 million the previous year. Much of this is down to success in Ghana. The company’s primary site is the Jubilee oil field, which came online in November 2010 and is estimated to produce a potential 120,000 barrels a day.
Further to this, Tullow also discovered the Enyenra field in Ghana and a smaller field called Tweneboa. First production of these two fields is expected in 2014 and will add a further 120,000 barrels a day.
Like many Irish people in the 1980s, Heavey admits his experience of the oil industry didn’t extend much beyond the iconic U.S. soap opera “Dallas”. His first foray reportedly followed a tip from a banker who told him Senegal was looking for a company to develop its oil and gas fields. He winged the negotiations and won the contract.
Returning to Ireland, he took out a bank loan, mortgaged his house, and asked former employer Tullow Engineering for backing. Legend has it that he found a geologist through the yellow pages and bought a used oil rig in Texas, shipping it and its U.S. crew to Senegal.
A wave of mega mergers in the following years opened up opportunities for smaller players as the giants divested older fields to chase bigger bets elsewhere.
For companies like Tullow, these cast-off fields, particularly in Africa, created a steady revenue stream.
“Africa has enormous potential. It’s still the great undeveloped continent. It doesn’t need aid, it needs investment.” But, he adds, the investment community also has a huge responsibility to invest properly. “Governments need to realize they are competing with other countries for those investment dollars. They need to ensure that the contracts and systems they put in place are investor-friendly.”
It has not all been plain sailing for the firm. Expansion of its project in Uganda was delayed 14 months due to a tax dispute between the Ugandan authorities and Heritage Oil Corp. (HOC.T) over capital gains from Tullow’s purchase of Heritage’s assets in Uganda. However, Tullow has now signed a memorandum of understanding with the Government of Uganda.
“The last six months in Uganda have been about finalizing these points, it shouldn’t have taken that long, but we’ve also had an election in the country and that slowed things down.” Heavey says the company was always confident the issues would be resolved but, “when countries in the developing world see all these projects worth billions of dollars setting up they’re concerned we’re going to walk away, and they won’t see any of the revenue–and I can understand why they look at it this way.”
The physical location of some of Tullow’s biggest projects has also proved a significant challenge, carried out in incredibly sensitive environments such as Lake Albert in Uganda. “Environmental assessment is absolutely vital. You have to look at a location very, very carefully. We see it as part of our job to preserve the areas we work in. If you want to be viewed as a long-term player then you have to be seen to be doing that.”
Crude’s repeated rise over $100 a barrel has made no small contribution to Tullow’s recent success but Heavey’s outlook for oil prices is not what you might expect. While he believes the disruption and unrest in the Middle East will eventually settle down and prices will move lower, he says: “The fluctuation of the oil price is not good, it doesn’t really help the industry. The $70 to $80 a barrel level is a very good range. Once prices start to spike it creates uncertainty for contractors, such as service companies that provide the rigs.”