“DO YOU know where the name Tullow comes from?” Aidan Heavey asks, chuckling. “Because our share price is so low,” he adds, breaking into full-blown laughter.

The amicable 52-year-old Irishman has reason to be cheerful. The past 15 months have proved a watershed for Tullow, transforming the London-based company from a small oil and gas play into the second-biggest company in the UK independent sector (the description used for the smaller, up-and-coming oil and gas players), trailing only Cairn Energy in terms of market capitalisation.

A soaring oil price has helped, without question, but the seeds were sown with some astute acquisitions since May last year. Tullow has outperformed the FTSE all-share index by about 90 per cent in that time and is one of the 40 biggest stocks in the FTSE 250.

Worth £1.5 billion, Tullow lags FTSE 100 members such as Emap and Hays by about £500 million. Given that its shares have risen from around 90p two years ago to 223p on Friday, despite a massive expansion of its issued share capital, inclusion in the illustrious FTSE 100 club is no longer a pipedream. Tullow has come a long way, then, since its inauspicious beginnings in 1985 as an oil distribution company.

Heavey again breaks into laughter when asked whether Tullow today is simply the fruition of his two-decade-old dream. “I thought we’d be a lot bigger. The foot is definitely on the accelerator now.”

The accelerator has been depressed for some time, as last year’s $1 billion acquisition spree demonstrates. The acquisitions, first the takeover of Energy Africa, then the purchase of the Schooner and Ketch gasfields in the North Sea from Royal Dutch Shell and ExxonMobil, more than doubled Tullow’s size.

Today, Tullow operates in 16 countries and has stakes in 25 producing fields and 90 exploration blocks. Its attributable oil and gas-equivalent production is more than 57,000 barrels per day (bpd), with an end-of-year target of 65,000 bpd. Last year Tullow made a £58 million pre-tax profit and increased its small dividend by 75 per cent.

Until early last year, Tullow had a low profile and a solid production portfolio, centred on Britain’s North Sea sector and assets in Africa and South-East Asia. That all changed with its $570 million purchase of Energy Africa in May 2004. The deal transformed Tullow into a big-league player in Africa, with stakes in several producing and undeveloped oil and gasfields and equity participation in extensive exploration programmes, mostly on the continent’s western side. The assets include the massive Kudu gasfield off the coast of Namibia, part of a giant $1 billion (£543 million) power project in the African country.

The £200 million Schooner and Ketch deal followed last December and cemented Tullow’s position in the southern North Sea sector, both as a gas producer and as an infrastructure owner.

“All the acquisitions that we have done have been acquisitions where we saw a lot of upside in the assets that nobody else did, and we extracted that upside quickly,” Heavey says.

Some observers questioned whether Tullow had overpaid for Energy Africa. The deal was largely financed with the issue of 170 million new shares at 95p. Now shareholders who bought into the deal are sitting on handsome paper profits.

Heavey says that Tullow was able to defy the critics by integrating Energy Africa within three months and improving the operating performance of the newly acquired assets by 50 per cent.

Tullow’s corporate vision is “to be a leading independent oil and gas group, with a balanced portfolio of exploration and production assets”. The company hopes to achieve its vision by focusing on enhanced recovery of marginal oil or gasfields, exploration success, suitable acquisitions and portfolio management. On top of acquisitions, Tullow has sold $180 million of non-core assets over recent years.

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