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Mauritania drill disappointment hits Tullow Oil shares
Oil group brushes off Statoil bid talk after higher exploration write-offs knock full-year profits
A lacklustre drill report from Mauritainia has hit shares in Tullow Oil after a mixed year that saw ongoing progress in East Africa but a $200m (£120m) jump in exploration write-offs.
While analysts were hoping for a commercial find in offshore Mauritania, following the drilling of Tullow’s first well Fregate-1, news that the oil group had merely made a “technical breakthrough” was greeted with widespread disappointment.
Tullow said that after drilling to 5,426m, it had “encountered up to 30m of net gas-condensate and oil pay in multiple sands”, adding: “Whilst encouraging, further assessment and analysis will be required before follow-up activities.”
Angus McCoss, Tullow’s exploration director, said he was cheered by the discovery, which reminded him of the first drill at the TEN development in offshore Ghana, due to produce its first oil in 2016.
“Is is something we are going to commit to this year? No. Is it a breakthrough into a new oil play. Yes it is,” he said.
But analysts at Cannacord said: “We had hoped for a commercial discovery here, providing an additional offshore ‘leg’ to the exploration story. The Fregate well is likely to have been costly, having started drilling in August 2013.”
Stockbroker Killik said the drill was “disappointing”, while Al Stanton, an analyst at RBC Capital, said “management’s commentary about it being a technical breakthrough rather than a commercial success and market’s reaction to gas condensate – rather than black oil – will weigh on sentiment”.
Tullow shares fell 53 to 792.5p.
News on Mauritania came alongside a sharp drop in full-year profits, down from $1.16bn to $313m pre-tax. But the fall was largely down to a $670m decrease in profits from disposals and a $200m rise in exploration write-offs – $101m of which was due to dry wells in French Guiana. Gross profit rose 7pc to $1.44bn on revenues up 13pc to $2.65bn.
Ian Springett, chief financial officer, attributed the higher exploration write-offs to having “six major basin campaigns” last year, adding: “If you are running six campaigns, some will be successful, some not. Kenya was particularly successful.”
Responding to the lastest flurry of speculation that Tullow was a bid target for Norway’s Statoil, Mr Springett said: “Because we have good assets and acreage, you get this speculation. Statoil is a name that has come up but there’s been no contact and we have no intention of selling the company.”