Tullow Oil hits bottom of FTSE due to dry wells

 
Suzie Neuwirth
TULLOW Oil made the biggest losses on the FTSE 100 yesterday, plunging 6.6 per cent after reporting that wells in Mozambique and French Guiana would be plugged and abandoned after coming up dry.

One of the energy explorer’s Mozambique wells discovered a gas-bearing reservoir, but this was deemed unlikely to be commercial on a standalone basis.

A well in French Guiana, which exploration director Angus McCoss called “an ambitious wildcat exploration well”, did not find oil.

“This now marks eight dry or uncommercial holes in a row for Tullow and the company’s historic exploration premium will be tested again this morning,” said Malcolm Graham-Wood, analyst at VSA Capital.

“Our model had factored [a decline of] around 5p for the two holes, but we anticipate the stock could weaken more than this due to the ongoing trend in 2013.”

Tullow’s operations in Kenya and Ethiopia are seen as pivotal to the company’s future performance, according to analysts.

“What can reignite the Tullow stock is continued de-risking in Kenya or Ethiopia, where four rigs are operational, rising to six rigs under [joint venture partner] Africa Oil’s plans,” said Bernstein researchers in a note.

“In addition, with seven high-impact offshore basins drilling or near-to-spudding, only one needs to work to replicate Tullow’s value creation during the success period of 2004-2009 when they were drilling Uganda and Ghana side by side.

“Dry wells such as today will occur along the way but don’t derail this upside.”

Tullow’s shares jumped three per cent earlier this month when it posted a strong production update for its Kenyan activities, doubling its resource estimates from two Kenyan wells.