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Tullow Oil shifts Africa focus to onshore investments

Tullow Oil will shift its investment focus to its onshore East Africa portfolio and Ghana discoveries due to lower oil prices and poor offshore drilling results, as the company looks to rebuild investor confidence.

"In light of current oil and gas sector challenges including the commodity price environment, we are reviewing our capital expenditure and our cost base to ensure that Tullow is well-positioned for future success," Tullow CEO Aidan Heavey said in interim management statement Wednesday.

Tullow will reduce capital spending by almost $300 million next year from $1 billion, limiting exploration to basin opening wells in Kenya and Ethiopia and offshore Norway.

"Our overall exploration spend will be significantly reduced and will focus primarily on East Africa where we have major basin-opening potential," Heavey said.

Tullow, however, will remain an exploration-led company and will continue to add further high quality frontier acreage so that it can return to drilling the types of prospects it has today, he said.

Though the board has yet to approve next year's capital spending, it is likely to be in the region of $2 billion and will include expenditure of $900 million in Ghana, the company said.

During 2015, in addition to significant appraisal and testing activity in the South Lokichar Basin, Tullow expects to drill a further five basin-testing exploration wells across its acreage in Kenya and Ethiopia.

The company is reviewing its operations in French Guiana, where it has significant costs booked for the Zaedyus discovery, and in Mauritania, where a decision will be made on which licenses to retain.

The company earlier this month said it was puling out of the Kudu project in Namibia.

"This could be watershed moment for the company in its efforts to build investor's confidence in the business outlook," James Hosie, an analyst at Barclays Capital, said in a note. "Management has responded to the lower oil price outlook and concerns over the scale of its exploration ambitions."

Tullow's shares have lost more than 40% of their value since July largely due to a slew of disappointing well results. In London trading, the stock was up 1.39% at 489.35 pence at 10:55 local time.

Analysts at Westhouse Securities said it was not surprising that Tullow is reviewing its medium-term strategy given weaker oil prices and said the reduced outlook is probably already discounted in the share price.

"The market may actually be pleased with Tullow's decision to place more emphasis on near-term production and development delivery," they said in a note.

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