Tullow Oil’s (LON:TLW) new oil find in Ghana hasn’t impressed investors all that much on the London Stock Exchange, with the shares edging just half a percent higher in early deals.
This morning the FTSE100 oil stock revealed that the Teak-1 exploration well hit 73 metres of oil and gas in five separate reservoirs. The well is in the the West Cape Three Points area off the coast of Ghana, and it is 4.6 kilometres north-east of the company’s Mahogony-2 well.
In the shallower Campanian-aged reservoirs, the well uncovered six metres of oil n the upper zone and 33 metres of gas pay with an underlying 15-metre 40 degree API oil leg, in the lower zone. In the deeper stratigraphic Turonian-aged reservoirs, the well found 14 metres of gas-condensate pay in two separate zones and five metres of 32 degree API oil pay in a deeper level.
Tullow has a 22.9 percent stake in West Cape Three Points, alongside its partners Kosmos Energy, Anadarko Petroleum (NYSE:APC), the E.O.Group, Sabre Oil & Gas and the Ghana National Petroleum Corporation.
This is the Irish oil firm’s latest success in Ghana, where it established the country’s first oil production when it brought the Jubilee field on line back in December last year.
Exploration directors Angus McCoss said: “"Success in all five of the targeted reservoirs, encountering 73 metres of total net pay, is an excellent outcome for the Teak-1 well and a great start to our 2011 multi-well exploration campaign in the West Cape Three Points licence.
“The significant potential of this discovery, up-dip of Jubilee, will be appraised during 2011 and 2012 once the current drill-out campaign has been completed.”
On the face of it while the new discovery seems like big news finnCap analyst William Arnstein is waiting for more drilling work yet.
“While encountering 73 metres of net hydrocarbon pay is an excellent result, we cannot yet declare Teak a significant new discovery. Its importance will depend on how much of the discovery is oil and the outcome of appraisal drilling up-dip,” Arnstein said in a note to clients.
“As a consequence, the result is a modest positive to net asset value (NAV) but acts as a reminder that few of Tullow’s exploration wells will actually move the needle going forward.”
Davy analyst Job Langbroek reckons the discovery adds just 3 pence to his current net asset value estimate of 1501 pence a share.
“This is another good result for the group and further underpins the prospectivity of the region and the growing understanding of the geology and petroleum system,” Langbroek said.
He adds: “For now, we think shareholders will be happy with the well outcome, especially the positive implication for the balance of this year's exploration work.”
Evolution Securities oil and gas analyst Richard Griffith was more upbeat. He reckons the Teak well results exceeds expectations and he has upped his target price to 1,520 pence a share.
“Teak was expected to be gassy but the result indicates that there could be over 50 percent oil and every likelihood that the pre-drill P50 estimate of 100 million barrels of oil equivalent will be exceeded,” Griffith said.
Although Richard Rose, analyst at Oriel Securities, also acknowledged Tullow’s success he reckons the share price is already up with events and as such he kept a slightly bearish view on the stock.
“This is clearly a good result although not a complete surprise given Anadarko's positive comments on the well last week,” Rose said.
He adds: “Whilst we continue to believe Tullow will have further exploration success in Ghana and elsewhere, in our view this is already priced into our shares and we stick with our ‘reduce’ recommendation, although we would highlight that play opening success in new areas, particularly offshore, South America could change that stance.”
Meanwhile Investec analyst Angus McPhail initiated his coverage on Tullow this morning against the backdrop of the new discovery.
The analyst rates Tullow as a ‘buy’ with a 1893 pence target.
“Tullow has strong cashflow due to production ramping up in Ghana, and an impending farm down in Uganda. Its long tail of exploration prospects in Africa and South America offers significant upside potential.
He adds: “The market appears to be ignoring its exploration potential which we estimate equates to 454 pence risked in 2011 and 80 pence risked in 2012. Latin America will be the new area of interest with exploration drilling in the Coronie Block in Suriname, and the Zaedyus prospect in French Guiana.
“We believe Tullow's geological experience in the African Transform margin gives it a key advantage in Latin America.”