Tullow shares plunge after drilling results fall short of expectations

Tullow Oil shares plunged on Thursday after the troubled exploration company found less oil than expected after drilling an offshore well in Guyana.

Irish-founded Tullow reported that results from test drilling of its Carapa-1 well off Guyana’s coast showed the oil deposit was smaller than it had hoped, while analysts said that the find was not commercial.

The news wiped more than £60 million sterling (€70 million) off Tullow’s value. The group’s shares tumbled 20 per cent in early trade in London, where it has its main listing, though it recovered to close 6.78 per cent down on the day at 59.66 pence sterling.

Mark MacFarlane, Tullow’s chief operating officer, conceded that the results were below the company’s pre-drill estimates, but he said they proved that an existing lucrative find in Guyanese waters extended to areas covered by its licences.

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Job Langbroek, analyst at Davy stockbrokers, noted the reservoir thickness was "sub-optimal and not commercial". David Round of BMO Capital Market said that the outcome was "some way short" of investors' expectations ahead of the result.

The poorer than anticipated finding from Carapa-1 follows news that oil production from Tullow's key fields off Ghana's coast in west Africa would fall below forecast levels this year.

Chief executive Paul McDade and exploration director Angus McCoss quit last month after Tullow cut production forecasts for a third time. Its shares fell almost 70 per cent in 2019.

Tullow also warned in November that two other discoveries in Guyana contained heavy oil, prompting fears that the projects would be difficult to commercialise.

Liabilities

BMO Capital Markets noted that Carapa-1 had been seen as the "big Hail Mary play" to save the Tullow story after it downgraded its predictions for Ghana.

Tullow said that the well’s net pay – the thickness of the actual oil deposit – was four metres. The company will plug and abandon the well. It will carry out a detailed laboratory of analysis of the oil found, which it said was of reasonable quality.

The Carapa-1 well falls within the Kanuku block off the coast of Guyana in South America, which is 37.5 per cent owned by Tullow. A further 37.5 per cent stake is held by the operator, Spain's Repsol, and France's Total owns the remaining 25 per cent.

Tullow suspended its dividend in December and pledged to take steps to cut its liabilities. The company expected net debt to be $2.82 billion by the end of 2019.

Tullow expects total oil production this year to be between 70,000 and 80,000 barrels a day, down from original forecasts of 87,000.

It estimates that production for the next three years would average 70,000 barrels a day from an original prediction of 100,000. – Additional reporting The Financial Times Limited 2020