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Tullow's shares tumble after Guyana find shown to contain heavy crude


Reassessing commercial viability of recent discoveries

Joe-1,Jethro-1 oil of 10-15 API, high sulfur quality

Lowers 2019 production outlook due to technical issues

  • Author
  • Eklavya Gupte
  • Editor
  • James Leech
  • Commodity
  • Oil

London — Tullow Oil's shares suffered a beating in early trading Wednesday as the independent oil explorer said its major oil finds offshore Guyana may not be as commercial viable as first expected due to the oil being tough to produce, low value heavy crude.

The UK-based company also lowered its oil production estimate for 2019 due to technical issues at its Ghanaian assets. Adding to the bearish sentiment, Tullow said its free cash flow generation was "adversely affected" by lower production and lower oil prices.

The company's shares tumbled more than 25% on the day early Wednesday after it said it was "assessing the commercial viability" of the Joe-1 and Jethro-1 discoveries "considering the quality of the oil, alongside the high-quality reservoir sands and strong overpressure."

A Tullow representative confirmed that laboratory results of the oil at the Jethro-1 and Joe-1 wells indicated that the specific gravity was as heavy 10-15 API and of very high sulfur content.

The API is very similar to the extra-heavy crude from Venezuela's Orinoco belt and the tar sands from Canada's Alberta province.

Oil of this quality can be very hard to extract, making it tough to commercialize at current oil prices, and this oil generally trades at a significant discount to global crude benchmarks.

Tullow CEO Paul McDade, however, said the company remains confident of the broader light oil potential of the other blocks in Guyana: Orinduik and Kanuku.

It is currently drilling the Carapa well, targeting Cretaceous play in the Kanuku block.

In August and September, Tullow discovered 55 meters and 14 meters of net oil pay at the Jethro-1 and Joe-1 wells, respectively.


Based on initial analysis, the market had been assuming these two discoveries would contain more than 100 million recoverable barrels of crude.

Analysts at JP Morgan Cazenove said the heavy oil found by Tullow "will be tough to commercialize in an offshore setting, but overall opportunity is by no means written off."

Similarly, Barclays said in a note that the unexpected quality issues "risks the commerciality of both prospects despite excellent reservoir quality and will likely mean a more considered 2020 exploration program in Guyana regardless the result at Carapa (drilling ahead)."

Eco Atlantic, one of Tullow's partners on the block, however, appeared slightly more upbeat.

"The fact that the oil is already hot in the reservoir, and mobile, and has high quality porous sand to travel through, helps to eliminate a great part of the conventional heavy oil challenge," Eco COO and founder Colin Kinley said.

This oil is of very different quality to the recent major finds in Guyana. ExxonMobil's giant Liza field, whichwill come online in early 2020, is classified as high quality light sweet oil with 34 API and 0.51% sulfur.

Guyana has become one of the world's hottest exploration plays after ExxonMobil made a string of large finds inthe adjacent Stabroek block off the Latin American country's coastline.

ExxonMobil estimates the Stabroek block holds more than 5 billion barrels of oil equivalent, most of it oil.


Tullow Oil also cut its 2019 oil output guidance Wednesday for the third time this year as its Ghana productiondid not meet expectations due to technical issues.

Oil production in 2019 from the company's West African assets are now set to average 87,000 b/d, compared with previous guidance of 91,000 b/d. This is "due to topside issues which have constrained water injection and gas handling," it said.

Tullow said that it hopes to sort out some of these issues in the coming months and that it will "assess the appropriate investment programme" in 2020 to improve the performance of the fields and their facilities.

"Water injection will be returned to full capacity by the end of November and enhancements to the gas handling system are planned for early 2020 to increase gas throughput capacity which will reduce gas management constraints," it said in a statement.

-- Eklavya Gupte,

-- Edited by James Leech,