Tullow Oil (TLW.L)
Discovery with Wawa in Ghana
Increase in TP to 1,803p (from 1,796p); reiterate Outperform: TLW (49.95%)
announced this morning a discovery with the Wawa well in the Deepwater Tano
Block, offshore Ghana. A smaller and a little more gassy discovery than
expected, but still slightly value accretive on our estimate. The well encountered
13m of net oil pay with samples showing good quality oil (38-44 API or ~$2/bbl
premium to Brent) and 20m of gas-condensate pay in Turonian aged reservoirs.
Wawa-1 is smaller than expected: Wawa-1 had two objectives – the first,
shallower objective, failed to encounter any reservoir, and the second, deeper
objective, encountered thicker reservoir and better pay than expected. Putting
all together, the discovery looks smaller and more gassy than pre-drill estimates.
We lower our recoverable resource estimate to 60mboe from previously
150mboe. De-risking of Wawa, thus, adds only 7p/share to our risked NAV.
Helpful to TEN complex: the discovery is a separate and distinct accumulation
from the TEN complex - 10km north of Enyenra-3A – and tested the previously
undrilled, updip portion of the license (see map on page 2). While the PoD for
the TEN complex is likely already finalised for submission or already submitted,
we think the TEN development has been designed to have capacity for tie-ins.
This is how we expect Wawa to be treated.
Selective development: monetising assets that are non-core or where it has
relatively high stakes (40-50%). We view the TEN complex as a candidate for a
partial farm-out and we view the timing as being pre- or just after FID (see chart
on page 2) as ideal. We highlight TLW has not stated that it is actively seeking
to farm-out TEN; it has funds to develop it and with that it will be a better seller,
in our view, if it chooses the part of a partial sale. This strategy is important, in
our view, to keep the gearing to the drill-bit high (and unlock value earlier) as
typically oil companies tend to underperform during the development phase.
Valuation: we maintain our O/P with a revised TP of 1803p (from 1796p).
7 pages, 3 figures, download available at sendspace.com
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From two days ago
Tullow Oil (TLW.L)
Update on Jaguar
Reduce TP 1,796p (from 1,841p): TLW announced this afternoon an update
on the Jaguar-1 exploration well in Guyana. While it encountered samples of
light oil from two Late Cretaceous turbidite sands above the primary objective
(we think the Maastrichtian) – indicating that the offshore basin is oily – it could
not reach the primary target (Turonian) due to overpressure (4,876m reached vs
TD of ~6,000m). The well will be plugged and abandoned suggesting
insufficient volumes in the shallower horizons to make it commercial, in our view.
This looks similar to Shell’s Abary-1 well in 1975, which encountered oil shows
at ~3,000m (Maastrichtian Sands) before being abondoned at ~4,000m due to
overpressure. The overpressure, created by rapid sedimentation and burial of
overlying sands, can cause significant issues for drilling; wells have to be
carried out much more slowly and additional casing strings are required, making
it more costly to drill. The well is estimated to have cost ~$150m (gross);
cheaper than the Zaedyus wildcat as it was a jack-up rig (shallower water).
TLW and its partners (operator Repsol) will look to redesign the well and
location; while this is likely just a delay to the next drilling to the test the upside
in the primary target (pre-drill estimate of PMean of 430mboe for the fan
system), we take the view that this may not be in the next 12 months. With this,
we remove the upside potential from Guyana from our valuation and we lower
our TP by 45p/share – the risked value we carried for the Jaguar fan system –
to 1796p/share. We maintain our Outperform rating.
Catalysts: Wawa in Ghana is expected to reach TD in July (32p unrisked
upside potential). Thereafter, it will be quiet for a short period, but catalysts will
be numerous in 2H12 from French Guiana, and a number of wells are set to be
drilled in Kenya/Eithiopia including, Twiga, Paipai (to derisk Cretaceous rift play),
and Sabisa (Ethiopia). The Kenyan/Ethiopian wells are important as TLW aims
to derisk the key prospects in the 7 basins. An important well to watch is also
the high risk/high reward Mbawa in 4Q12-1Q13, offshore Kenya targeting oil.
Valuation: we maintain our O/P with a revised TP of 1796p (from 1841p).
7 pages, 2 figures, download available at sendspace.com |
