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Tullow's latest oil find in Guyana disappoints

Shares of Tullow Oil PLC plunged Jan. 2 after the multinational oil and gas company said the volume of its latest oil discovery in Guyana was lower than forecast.

The Carapa-1 exploration well, drilled on the Kanuku license offshore Guyana, which is operated by Repsol SA, encountered approximately four meters of net oil pay.

Tullow's shares dropped almost 15% in early morning London trading after the Guyana oil strike was smaller than hoped, but by late morning, they were down by about 5%. The market has been closely monitoring developments in Guyana after discoveries and reports off the northeastern coast of South America have attracted some of the biggest names in the industry.

Tullow's oil discovered is of much better quality than the oil it found in the Joe and Jethro wells in the Orinduik block. Tullow said the discovery of better-quality oil supports the significant potential of the Cretaceous play on both the Kanuku and adjacent Orinduik licenses.

"While net pay and reservoir development at this location are below our pre-drill estimates, we are encouraged to find good quality oil which proves the extension of the prolific Cretaceous play into our acreage," Tullow COO Mark MacFarlane said.

Preliminary testing shows the oil is 27 degrees API with a sulfur content of less than 1%, Tullow said. The oil at the finds in the Orinduik block have a specific gravity of 10 to 15 API and a very high sulfur content. Repsol is operator of the Kanuku block with a 37.5% stake, while Tullow and Total SA hold 37.5% and 25% respectively.

Rough patch

Tullow's shares have suffered a tumultuous few months due to a string of bad news. In late November 2019, the independent explorer said its promising oil finds off Guyana were not as valuable as first expected as the oil was tough to produce, viscous heavy crude.

On December 9, 2019, Tullow's shares fell more than 70% on the day CEO Paul McDade and Chief Exploration Officer Angus McCoss resigned. The departures were caused by a string of disappointing exploration and production results at the company's key assets in Ghana.

Tullow's oil production in 2020 is expected to average 70,000 to 80,000 barrels per day, while the outlook for the following three years is expected to average around 70,000 bbl/d. This is significantly lower than its previous production expectations, which until recently had been forecast to average more than 100,000 bbl/d in 2020 and beyond.

Analysts, however, doubt the commercial viability of Tullow's Guyana oil discoveries. "Confirming the commercial viability of the inboard play remains elusive for Tullow," analysts at investment bank Jefferies said in a note. "But the fact that Tullow has discovered 'good quality oil'... inboard from the Starbroek Block does prove the extension of the Cretaceous play onto TLW's shallower water acreage."

First oil from Guyana

Guyana recently became an oil producer when on December 20, 2019, an Exxon Mobil Corp.-led group announced its long-awaited production of first oil from the offshore Liza field.

Liza phase one is producing from the Destiny floating, production, storage and off-loading facility and will peak at 120,000 bbl/d of oil over the next several months.

The Liza phase one development will produce up to 120,000 bbl/d over the next several months via a floating production storage and off-loading vessel. Liza phase two, which was sanctioned last year, is expected to produce up to 220,000 bbl/d when it comes online in mid-2022.

A few days after first oil, Exxon made another oil discovery called Mako, located offshore Guyana, adding to anticipated Liza production. Liza crude is considered medium sweet with a typical gravity of 32.1 API and sulfur content of 0.51%.

Eklavya Gupte is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.