small is beautiful

Small Is Beautiful in Africa, Tullow Boosting Its Volumes

By Sven Ridley-Wordich
22 Jun 2007 at 11:31 AM GMT-04:00


AMSTERDAM (ResourceInvestor.com) -- The international oil market has largely focused on OPEC, IEA and Iran in the last few weeks, leaving almost no space for developments of independents and juniors. The future of oil production is at present however not in the hands of majors, but largely based on the success of oil and gas juniors, such as Tullow Oil [LSE:TLW], it seems.

The Irish-owned junior has been hitting the news in the last week with two major oil discoveries, presenting interesting prospects for investors to reap some short-term profits without the normal risks. Tullow Oil officials have announced the discovery of up to 600 million barrels of oil in West African country Ghana. At the same time, African sources also indicated that the junior boosted its operations in Uganda, when it discovered another production field in Block 2 in the Bunyoro sub-region in western Uganda.




Tullow's exploration director Angus McCoss stated that the possible 600 million barrels of crude oil reserves are way beyond the scope expected. Tullow’s expectations were based on an assessment of 250 million barrels of crude oil from its Mahogany-1 well on the West Cape Three Points block offshore Ghana. New data acquired has, however, shown total reserves reaching 600 million barrels. Some of this is expected to be found in high-potential zones, which will be assessed soon.

Tullow officials, when asked to comment on further prospects in Ghana’s offshore acreage, indicated that reserves could be in place in West Cape Three Points and Tullow’s other block called Deepwater Tano. Tullow holds a 22.9% stake in West Cape Three Points, and a 49.95% equity stake in Deepwater Tano.

Ghana’s oil future seems to be bright, as the new finds will promote further E&P operations in the country’s offshore acreage. At the same time, West Africa’s overall standing as possible substitution for Middle East oil supplies to the West has increased substantially. For Ghana itself, new reserves, at a time of $70 per barrel, will be a god-send, giving the country additional revenues.

The Ugandan operations are also progressing above expectations. In addition to its Block 2 discovery, Tullow has already stated that it expects another successful test drill at the Nzizi 2 oil well to be announced soon. Ugandan drilling by Tullow has been exceptionally successful, with a total success rate of 5 out of 5 since 2006. The company already announced the discovery of oil at Kingfisher in Block 3A, which has reported an overall average flow rate of 14,000 barrels per day.

Tullow Oil bought out Hardman Resources in 2006, making it 100%-owner and operator of Block 2, where four wells have been drilled with a combined flow rate that could exceed 14,000 barrels of oil per day once Nzizi 2 is done. Tullow Oil has production licences in 23 countries and is focused on four main parts of the world - Europe, Africa, South Asia and South America.

The company’s success has already been recognized by the stock markets. Investment bank Merrill Lynch has added the junior to its Europe 1 list, with net asset value based price objective raised by 35 pence to 560 pence per share.

However, investors should keep in mind that current market developments, which have boosted Tullow’s share price substantially, will cool down slowly. New oil will be reaching the market not within the next five years.

If taking the more long-term approach, Tullow could be a high value bet without many of the normal risks. Operations of the company are currently based on largely low-risk oil and gas areas, leaving enough playing room to increase its acreage even further.

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