Tullow Continues High-Risk Strategy


BMI View : Tullow has struck oil in Ghana , again. The string of exploratory successes it has achieved in Africa supports i ts decision to embark on a risk y , but high-paying strategy, which sees the UK independent shed 'non-core' assets in less prospective areas such as Bangladesh and the UK a nd Dutch North Sea and focus its efforts on exploration and production in rich frontier plays such as Africa. Its high-risk strategy appears to have extended into its Norwegian entry as well; Spring Energy's Barents Sea assets could have been the draw in Tullow ' s decision to acquire the Norwegian junior. This follows an announcement by the Norwegian Petroleum Directorate ( NPD ) that Tullow has applied for production licences in the Barents-focused 22nd Licensing Round.

Tullow Oil continues its streak of Africa n discoveries with another oil find in the Okure-1 exploration well. Located offshore Ghana in the Deepwater Tano licence, Okure-1 was drilled to a depth of 4,511 metres (m) and hit a gross 17m interval of low net to gross oil bearing sandstones. According to its press release, the oil is light at 40 degrees API. T his is most likely a brand new oil accumulation unconnected to other discoveries made in the area.

The discovery highlights further upside potential to reserves in the deepwater Tano licence , where the UK independent has already uncovered the Tweneboa, Enyenra and Ntomme fields. It now plans to drill Sapele-1 by the end of the year. Sapele-1 is adjacent to the Jubilee field, which according to Tullow is producing over 90,000 barrels per day (b/d) after the first Jubliee Phase 1A production well came online.

Tullow is operator of the deepwater Tano licence with a 49.95% share alongside partners Kosmos Energy (18%), Anadarko Petroleum (18%) and Sabre Oil & Gas (4.05%). National oil company (NOC) Ghana National Petroleum Corporation (GNPC) holds a 10% carried interest.

Taking On Risks For High Pay

This is good news for Tullow, whose winning streak was briefly marred by a disappointing appraisal of the Zaedyus -2 well offshore French Guiana , in South America on the other side of the Atlantic Fairway. Technical difficulties in its Georgetown licence in Guyana, where it had drilled the Jaguar-1 well with partners Repsol , YPF and CGX Resources , also led it to abandon the licence , though Tullow says that it 'continues to evaluate oil exploration opportunities in Guyana and the wider region'.

West Africa, however, continues to be a hit for the UK company. The Okure-1 find continues to support the rich resource potential that offshore Ghana - and the West African coast - holds and the country's position as an oil producer. Tullow has also led the industry in oil discoveries in East Africa.

In light of its successes in Africa, it is not surprising that it has chosen to divest assets elsewhere to focu s on this frontier region where gains have been high. In addition to shedding acreage in less prospective areas such as Bangladesh (see our online service, August 9 2012, ' CNC In Talks To Facilitate Tullow ' s Exit ' ) , it announced that it will also be selling gas assets in the UK and Dutch Southern North Sea, which have become ' non-core ' to the company following its successes in Ghana, Kenya and Uganda.

Betting On Africa
Regional Share Of Tullow's Total Acreage (LHS) & Capital Investment In H112 (RHS)

Despite the prospectivity of its African assets, Tullow is still taking a bigger risk by betting on them for the company's fortunes. Although the North Sea licences it plans to sell by end-2013 are relatively small - they produce about 18,000 barrels of oil equivalent per day (boe/d) - they are located in stable and proven basins with low regulatory risks.

The operating environment in Africa is tougher. It is still at an early stage of exploration in Kenya, but government demands already look set to increase on the back of the country's recent discoveries (see ' Frontier Goes Mainstream With Upstream Reform ' , October 30). Production from the Jubilee field in Ghana has also met with early technical issues that saw early output figures disappoint (see ' Jubilee Problems Continue As Ghana ' s Output Edges Higher ' , April 2). Meanwhile, a deadlock with the Ugandan government over export plans has stood in the way of commercialising its oil assets in Lake Albertine (see ' Regulatory Roadblocks Could Delay Oil Industry Development', September 7).

The UK independent is carrying on its risky but potentially high-paying strategy into the Norwegian Continental Shelf (NCS). It launched a US$372mn takeover bid for Norway-focused Spring Energy on December 11 2012, which only has one producing asset out of its 28 licence areas in the NCS. Most notable of Spring's portfolio are its five licences in the Barents Sea: PL 438, PL 490, PL537, PL 610 and PL 659. It could be these blocks, located in prospective but technically challenging Arctic waters, that Tullow is eyeing. The acquisition of Spring would boost Tullow's presence in the Barents Sea, following an announcement by the Norwegian Petroleum Directorate (NPD) that Tullow is one of the 36 applicants for production licences in the Barents-focused 22nd Licensing Round.

Table: Spring Energy's Assets In The NCS
NORTH SEA
Source: Spring Energy
License Field / Prospect Spring WI % Status
Brage Unit Brage Field 2,5 % Production
PL 337 Exploration 20% Exploration
PL 405 / 405 B Butch 15% Exploration
PL 406 18/10/2001 20% Discovery
PL 407 Bream 20% Discovery
PL 495 / 495 B Carlsberg 40% Exploration
PL 507 Lupus / Tetrao 20% Exploration
PL 509 S Ninian Fan 30% Exploration
PL 542 Augunshaug 40% Exploration
PL 550 Gotama 80 % Exploration
PL 551 Mantra 80% Exploration
PL 577 Koli Luwak 20% Exploration
PL 619 20% Exploration
PL 626 Granberget/Rovarkulla 30% Exploration
PL 636 Ra/Jorsalfare 20% Exploration
NORWEGIAN SEA
License Field / Prospect Spring WI % Status
PL 511 Mjøsa 10% Exploration
PL 519 Albert 20% Exploration
PL 583 Inntian 30% Exploration
PL 591 Scrabble 60% Exploration
PL 596 Sudoku 15% Exploration
PL 639 Kanel 30% Exploration
PL 642 Hagar 20% Exploration
PL 651 Lupins/Båvarden 35% Exploration
BARENTS SEA
License Field / Prospect Spring WI % Status
PL 438 Skalle 17,5 % Exploration
PL 490 Juksa/Snurrevad 20% Exploration
PL 537 Wisting 20% Exploration
PL 610 Umo 25% Exploration
PL 659 Matrosen 10% Exploration
This article is tagged to:
Sector: Oil & Gas
Geography: Ghana