After a torrid end to 2019 oil explorer Tullow Oil (TLW) must be wondering when it will catch a break. Despite announcing a new oil find offshore Guyana, shares in the company fell 4.7% to 61p on Thursday.
This latest setback reflects a well result which came in below pre-drill expectations. The Carapa-1 exploration well, drilled on the Kanuku licence offshore Guyana, encountered approximately four metres of net oil pay based on preliminary interpretation.
This follows December's decision to slash production guidance and suspended dividends. Several of the senior management team also departed.
BELOW EXPECTATIONS
The company said the preliminary results of drilling, wireline logging, pressure testing and sampling of reservoir fluid indicate the discovery of oil in Upper Cretaceous age sandstone reservoirs.
But the net pay - the part of an oil reservoir which contains economically recoverable crude - is lower than pre-drill forecasts, the key point that investors are today picking up on.
Tullow said that the 27 degree API oil supports the significant potential of the Cretaceous play on both the Kanuku and adjacent Orinduik licences according to the company.
LOOKING ON THE BRIGHT SIDE
Irish broker Davy believes that the well result should be welcomed since it confirms an extension of the Cretaceous play into the Kanuku licence, while the oil quality (API and sulphur content) is also very acceptable.
Yet the important point is that ‘at the current location, the reservoir thickness is sub-optimal and not commercial.’
‘Our preliminary analysis points to a couple of things. The overall Guyana play is still very much a viable target but for now is likely to be focused on the Cretaceous - both in the Kanuku and Orinduik blocks.
'However, the current year is likely to be largely one of study of the 2019 three-well programme with further drilling confined to the end of the year, if at all, and more likely to be part of a 2021 programme,’ the broker said.
