Report
Jessica Saadat
EUR 57.00 For Business Accounts Only

Tullow Oil - Guyana Suriname brekkie

Tullow Oil hosted a two hour teach-in on their South American assets for analysts yesterday. The presentation provided a lot of information on their Guyana and Suriname acreage, as well as the Araku well which is due to spud in early October. We don’t make any changes to our numbers yet, which currently only include value for Araku, given Guyana probably won’t be drilled until 2019, but clearly a lot of work has been done by the team, and we believe it’s a highly exciting aspect of the Tullow Oil investment case.

Araku is a “trigger well” – Tullow Oil expects to spud Araku-1, off Suriname, in early October. The well is expected to take only c31 days to drill, at an attractive well cost of c$41m gross ($14m net to Tullow). Official guidance is for a prospect size of c500mmbls, but management flagged some of its partner’s estimate it could be up to a billion barrels. We include only 2p risked (25p unrisked) in our RENAV of 232p, based on a 500mmbl prospect size and 10% CoS (and a notional NPV of $3/boe). We note that the actual geological chance of success is 30% which is very high for a wildcat well. We discuss the details in more depth in the note, but the key risks are mainly around reservoir quality (eg presence and thickness) and phase risk (eg gas or oil). If successful, it could derisk other prospects (not included in our RENAV) on the Demerara Plateau such as Rosevelt. If unsuccessful, the focus would shift slightly north to Block 47 where Tullow has the large Goliathberg prospect.

Guyana 3D data confirms prospectivity – Tullow has just recently completed a 3D seismic survey on its Kanuku and Orinduik blocks off Guyana, which lie inboard from Exxon’s billion bbl plus discoveries. Although reprocessing is at a very early stage, the data so far is encouraging. There are several prospects such as Amaila and Kaieteur that Tullow will look to drill in 2019/2020. We don’t include any value for them yet but clearly given Exxon’s discoveries, the area is highly sought after, and it is testament to Tullow’s exploration team that they managed such a successful land grab before the region was put on the hydrocarbon map.

We remain with our BUY recommendation on Tullow - We note that the ITLOS ruling is due to occur this Saturday. Resumption of drilling on TEN should be seen as a positive by the market.
Underlying
Tullow Oil plc

Tullow Oil is an independent oil and gas exploration and production company. Co.'s focus is on finding oil in Africa and South America. Co.'s primary activities include targeted exploration and appraisal, selective development projects and growing its production. As of Dec 31 2017, Co.'s portfolio included 90 licences in 16 countries. Co.'s operations are organized into three business delivery teams: West Africa; East Africa; and New Ventures. As of Dec 31 2017, on a working interest basis, Co. had commercial reserves of 245.7 million barrels of oil, 268.90 billion cubic feet of gas, and 290.5 million barrels of oil equivalent (petroleum).

Provider
Whitman Howard
Whitman Howard

Whitman Howard is an independent institutional stockbroking and investment banking business focused on servicing the needs of our corporate clients and institutional investor base.

The company began trading in 2011 with a team of highly experienced market professionals and the goal of building a leading capital markets business in an entrepreneurial environment.

Analysts
Jessica Saadat

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