Tullow braced for tribunal's ruling over key Ghana oil block

Tullow Oil, the UK exploration and production company, is braced for a crucial decision on Saturday over an oil block at the centre of a dispute between Ghana and the Ivory Coast.

Tullow is the lead operator on the so-called Ten fields, which are expected to add substantially to cash flows and profits that are already derived from its flagship Jubilee field development off Ghana's coast.

Analysts said an adverse verdict for Ghana would badly hit sentiment in Tullow, whose shares have already fallen by about half in the past year.

Tullow fell out of the FTSE 100 last month and was subsequently downgraded by Moody's, the rating agency - a decision that followed a downgrade of Ghana's sovereign rating.

Moody's said its negative outlook on Tullow "captures the increased uncertainty generated by the maritime border dispute with Cote d'Ivoire".

The dispute relates to Tullow's commitment to develop additional fields off Ghana, in waters that the host country believes are close to those belonging to Ivory Coast but clearly within its own jurisdiction.

Both west African countries put their case to the International Tribunal for the Law of the Sea, based in Hamburg, during hearings in March. At stake is whether Ghana should be forced to suspend all exploration and development in the disputed zone. A judgment in the case is scheduled to be announced on Saturday.

The tribunal can halt work until a final judgment is made - which could take two years. Observers are suggesting that if no definitive ruling is made favouring either side, a compromise deal could be struck to allow work to continue.

The case threatens Tullow's ability to push ahead with work at the Tweneboa, Enyenra and Ntomme (Ten) fields under dispute, which Ghana first approved for commercial exploitation in 2013.

Tullow owns under half of the Ten project, which is expected to produce up to 80,000 barrels of oil a day. Its previous attempts to sell down its stake in the project have failed, leaving it heavily exposed to further investment in the development.

In February Tullow said it expected to spend a further $1bn on the half-completed project in 2015, ahead of the anticipated commencement of first oil flows in the middle of next year.

However, confirmation in early March that Ivory Coast was pressing ahead with attempts to force an end to further work on the development prompted an 8 per cent fall in Tullow's shares.

The shares have rebounded since, to 408.5p on Thursday, but are still significantly below the £15 level they traded at three years ago.

In its submissions at the legal hearings in Hamburg, Ivory Coast insisted it had "never recognised, either in practice or law, any kind of customary maritime boundary" with Ghana.

Ghana argued that oil licences granted in the 1970s by Ivory Coast's late founding president Felix Houphouet-Boigny to companies including Shell and Esso effectively delineated a sea boundary.

Lawyers specialising in maritime border disputes said there was "an understanding, or a tacit agreement, or consistent practice, that clearly recognised an equidistance line as the boundary", which has stood for 40 years.

Tullow declined to comment on the dispute apart from stating it had "strong relationships with Ghana and Cote d'Ivoire after many years of successful operations in both countries".

Goldman Sachs analysts estimated that a two-year wait for a final judgment would wipe 16 per cent of their valuation for Tullow. But they also recognised that, in the wake of Shell's £47bn recommended offer for BG Group, Tullow was an attractive takeover target.

Analysts at Citi, meanwhile, said they expected the risk of a suspension of operations was low, as it would be "detrimental to all parties".

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