more9 Sep 2011 12:06
By James Herron
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--Shares in U.K.-listed Tullow Oil PLC (TLW.LN) soared Friday after the company said it has opened up a major new hydrocarbon basin offshore French Guiana with the discovery of a good quality oil reservoir from their first wildcat well.
Tullow gained more than GBP1 billion in market value on the discovery, which analysts said could be evidence of billions of barrels of undiscovered oil in the region. "This shows we are sitting at the top table," said Angus McCoss, Tullow's exploration director, in an interview with Dow Jones Newswires.
Tullow is running the drilling operation offshore French Guiana, but Royal Dutch Shell PLC (RDSB.LN) is the largest stake holder, after buying 45% of the license where the discovery was made from Tullow in two separate transactions in 2009 and 2010. Tullow retains a 27.5% stake, French oil company Total SA (TOT) has 25% and Northpet has 2.5%.
At 0848 GMT Tullow shares were up 11.2%, or 138 pence, at 1365p. B shares in much larger company Shell were unchanged at 2085p.
The Zaedyus well was drilled in a geological structure that Tullow has long argued could be very similar to the Jubilee oil reservoir offshore West Africa, where it has discovered 1.4 billion barrels of oil in recent years.
"This proves the Jubilee play is mirrored on the South American side of the Atlantic," said McCoss. "This result marks the start of a significant and potentially transformational long-term exploration and appraisal campaign in the region."
The discovery is a "major step" because the geological system offshore Latin America is bigger than that of offshore Ghana, said McCoss. "There are at least half a dozen more of these Zaedyus type traps adjacent," and the chance of finding oil in them has increased, he said.
"The importance of this result cannot be overstated," said Oriel Securities analyst Richard Rose. If drilling on these adjacent prospects is successful, Tullow might be sitting on 3.5 billion barrels of gross oil resources, which could boost the value of the company by around a third from its current share price, he said.
The discovery means Tullow and its partners can now drill with a greater chance of success in licenses they hold offshore Sierra Leone, Liberia, Ivory Coast, Suriname and Guyana, said McCoss.
These areas all have very similar geology because, "if you turn the clock back 100 million years, the Atlantic was just a narrow sea," said McCoss. Plate tectonics have since dragged the continent apart, but the geological structures that trapped the oil have remained intact on either side of the ocean.
"Certainly we've got the financial muscle and strategic mindset to move fast on this," said McCoss.
Tullow and Spain's Repsol SA (REPYY) will start drilling the Jaguar prospect offshore Guyana in October, he said.