UPDATE 1-Tullow will use cash to invest, reduce debt and not dividends

* CFO increased dividend outlook in April

* Kenya operations halted for security reasons

* FID Uganda still scheduled for end 2018, Kenya end of 2019 (Retail, market commentary analyst, update Kenya)

LONDON, July 25 (Reuters) – Tullow Oil, a company focused on Africa, will use $ 401 million to pay off its debts and invest rather than pay a down payment on dividend, announced Wednesday after raising the possibility of a return to payments.

Tullow was back last year after three years of losses and Chief Financial Officer Wood said in April that the company could start paying dividends again.

"The Board has carefully considered whether to pay an interim dividend but has concluded that, for the time being, free cash flow is best used to continue paying off debt and investing in assets" said Mr. Tullow.

Wood said on Wednesday that the company did not need to meet its $ 2.5 billion general net debt target in order to restore payments, adding both dividends and buybacks actions had their merits.

Tullow's net debt of $ 3.1 billion was slightly below expectations for the first half. The company had stated that it was expecting a free cash flow of about $ 300 million for the first six months of the year.

On Wednesday, he said that he could potentially generate about $ 650 million in free cash flow for the full year, but this could be affected by litigation costs.

A London judge this month ordered Tullow to pay Seadrill about $ 254 million, claiming that Tullow was wrong to terminate a contract between the companies because of force majeure.

Tullow had initially stated that his partners would pay based on their interests in the project, but Kosmos, who owns about 20 percent, successfully contested.

"The Tullow investment case should now focus on the development of resource conversion projects into reserves and more frequent exploration activities," Barclays said in a note. .

"Shareholder returns may also play a role, pointing out that a measured increase in activity does not equate to a loss of capital discipline."

Tullow plans to drill a well of exploration in Namibia in September Ghana next year.

It aims to make final investment decisions on Uganda by the end of this year and on Kenya by the end of 2019, which would open the oil industries of these countries to exports.

In Kenya, however, Tullow halted a pilot project for oil production and trucking around 600 barrels per day to the coast due to security concerns related to livestock theft and banditry.

He said that he was not expecting this to change the overall project schedule.