Tullow Share Price Slips on French Guiana Drilling Results

on Dec 5, 2012
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On 4 December 2012, the Financial Times reported that shares of the London-based oil explorer Tullow Oil (LON:TLW) plunged almost six percent following Tullow’s announcement that drilling at its Zaedyus 2 appraisal well in French Guiana failed to reveal commercial oil deposits.

**Tullow Shares Plunge**
Shares in Tullow Oil slipped sharply on December 4, with the news about the disappointing drilling results in French Guiana knocking almost six percent off the FTSE 100 company’s share price, which slipped 79p, to close at £12.92. In September 2011, Tullow described the oil discovery off the coast of French Guiana as “potentially transformational”, with the announcement lifting the share price 15 percent on the day.

The appraisal well is being drilled in the Guyane Maritime licence, with Tullow holding a 27.5 percent stake. The British oil explorer’s partners in the venture include Royal Dutch Shell (LON:RDSA, LON:RDSB, NYSE:RDS.A, NYSE:RDS.B) with a 45 percent stake and the French oil and gas producer Total (NYSE:TOT, LON:TTA, EPA:FP), which holds 25 percent. The remaining 2.5 percent are held by Northpet, a company owned by the Aim-listed Northern Petroleum (LON:NOP) and Wessex Exploration (LON:WSX).

The FT reports that Shell and Total’s shares held steady despite the announcement. Shares in Northern Petroleum however plunged 14 percent, whereas Wessex Exploration fell by as much as 23 percent.
**No Commercial Oil**
As noted in Tullow’s news release, the Zaedyus-2 appraisal well, offshore French Guiana, “did not encounter commercial hydrocarbons.” While the well is located close to Tullow’s Zaedyus-1 oil discovery, drilling results indicated that reservoirs at both locations were not connected. Commenting on the drilling results, Tullow’s exploration director Angus McCoss noted that they did not affect the potential for more discoveries at deeper locations. “The French Guiana block remains highly prospective, particularly down-dip and still offers excellent potential for multiple exploration successes, noted Mr McCoss in the company press release.

!m[No Commercial Oil, The Explorer Says](/uploads/story/971/thumbs/pic1_inline.png)Reuters reports that Tullow, which has exploration rights to large swathes of territory offshore French Guiana, Suriname and Guyana, has been hoping to replicate its success in finding big oilfields offshore West Africa. As noted by the FT, the company has argued that its initial discovery backed a theory that geological conditions producing oilfields along the West African coast could be replicated on the other side of the Atlantic since Africa and South America were connected millions of years ago.

**African Prospects**
While the French Guiana drilling results might be a setback as regards Tullow’s South American prospects, at the end of November, Bloomberg reported that the British explorer had made another discovery in Kenya, raising prospects that the country, which has no history of oil production, could have more potential than neighbouring Uganda.
“This immediate follow on discovery reaffirms the considerable prospectivity of the Lokichar Basin,” noted Mr McCoss, as quoted by Bloomberg. “Having significantly expanded our plans in Kenya and Ethiopia, there is much to look forward to as the exploration campaign and testing program move ahead.” Tullow is also expected to start drilling in Ethiopia’s South Omo block in late December.

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