Tullow Oil to pay $140m after losing court case

The English commercial court judgment found Tullow was not entitled to terminate its West Leo rig contract with Seadrill Ghana Operations under the contract’s force majeure provisions.

Tullow must pay gross fees of $254m for terminating the contract and other fees. Tullow said it expected to be liable for a net amount of about $140m or 9p per share. It had set aside $128m to cover the potential cost.

However, analysts pointed out that Tullow's partner on the Deepwater Tano block, Kosmos, has previously objected to this view and a court ruling on this separate disagreement is expected shortly.

“Tullow is disappointed with the decision and maintains the view that it was right to terminate the West Leo contract for force majeure,” Tullow said. “Tullow will now examine its options, including seeking leave to appeal the judgment.”

Tullow shares were little changed at 235p at 13:18 BST.

Analyst at RBC Capital Markets noted that Kosmos disputes its liability as it believes that Tullow entered into the original contract with Seadrill with the assumption that the West Leo would undertake other exploration and appraisal activities for Tullow, as well as the TEN development drilling campaign.

"The impact of a 9-14p charge on our Tangible NAV is unwelcome," RBC said, but felt it "does not derail Tullow’s investment case", which analysts feel is more driven now by the outlook for development opportunities in East Africa.