Tullow’s latest oil find in Guyana disappoints

Highlights

Shares slump after oil find was smaller than hoped

Oil is of better quality than in Orinduik block

Analysts doubt commercial viability of Guyana discoveries

London —
Tullow’s shares took another beating Thursday after it said the volume of its latest oil discovery in Guyana was lower than forecast.

The Carapa-1 exploration well, drilled on the Kanuku license offshore Guyana, which is operated by Repsol, encountered approximately 4 meters of net oil pay.

Tullow’s shares were shares down almost 15% in early London morning trade after the Guyana oil strike was smaller than hoped, but by late morning they were down by around 5%.

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However, the oil discovered is of much better quality that the oil it found in the Joe and Jethro wells in the Orinduik block.

Tullow said the discovery of better quality oil supports the significant potential of the Cretaceous play on both the Kanuku and adjacent Orinduik licenses.

“While net pay and reservoir development at this location are below our pre-drill estimates, we are encouraged to find good quality oil which proves the extension of the prolific Cretaceous play into our acreage,” said Mark MacFarlane, Tullow’s chief operating officer.

Preliminary testing shows the oil is 27 degrees API with a sulfur content of less than 1%, Tullow said.

The oil at the finds in the Orinduik block have a specific gravity of 10-15 API and a very high sulfur content.

Repsol is operator of the Kanuku block with a 37.5% stake, while Tullow and Total hold 37.5% and 25% respectively.

ROUGH PATCH

Tullow’s shares have suffered a tumultuous few months due to a string of bad news.

In late November, the independent explorer said its promising oil finds off Guyana were not as valuable as first expected as the oil was tough-to-produce, viscous heavy crude.

On December 9, Tullow’s shares fell more than 70% on the day CEO Paul McDade and Chief Exploration Officer Angus McCoss both resigned.

The departures were caused by a string of disappointing exploration and production results at its key assets in Ghana.

Tullow’s oil production in 2020 is expected to average 70,000-80,000 b/d, while the outlook for the following three years is expected to average around 70,000 b/d.

This is significantly lower than its previous production expectations, which until recently had been forecast to average more than 100,000 b/d in 2020 and beyond.

Analysts, however, doubt the commercial viability of Tullow’s Guyana oil discoveries.

“Confirming the commercial viability of the inboard play remains elusive for Tullow,” analysts at investment bank Jefferies said in a note. “But the fact that Tullow has discovered ‘good quality oil’… inboard from the Stabroek Block does prove the extension of the Cretaceous play onto TLW’s shallower water acreage.”

FIRST OIL FROM GUYANA

Guyana recently became an oil producer when on December 20, an ExxonMobil-led group announced its long-awaited production of first oil from the offshore Liza field.

Liza Phase 1 is producing from the Destiny floating, production, storage and offloading facility and will peak at 120,000 b/d of oil over the next several months.

The Liza Phase 1 development will produce up to 120,000 b/d over the next several months via a FPSO vessel.

Liza Phase 2, which was sanctioned last year, is expected to produce up to 220,000 b/d when it comes online in mid-2022.

A few days after first oil, Exxon made another oil discovery called Mako, located offshore Guyana, adding to anticipated Liza production.

Liza crude is considered medium sweet with a typical gravity of 32.1 API and sulfur content of 0.51%.

Carapa-1, even though disappointing, is a discovery and demonstrates the presence of a working petroleum system on the block,” said Ruaraidh Montgomery, an analyst with energy consultancy Welligence.

“Information from the well can help the partners improve their understanding of the remaining prospectivity on the block” since multiple targets have been identified, he added.

While noting that the discovery is “clearly non-commercial,” Rene Santos, an upstream analyst with S&P Global Platts Analytics, said finding oil near the prolific Stabroek block is “encouraging.”

“With the information from the well plus seismic and geologic modeling, [the Repsol-led group] may be able to find another location on their block where the net pay is much thicker” and even comparable to Stabroek, Santos said.

— Eklavya Gupte, eklavya.gupte@spglobal.com

— Edited by Jim Levesque, newsdesk@spglobal.com