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Successful well in Ghana sees sentiment rocket

by Tom Sieber

Blue chip explorer Tullow Oil hit record highs this week with a successful well suggesting that its oil field in Ghana may contain a billion barrels of oil, double previous estimates.

It ran up more than 20% to 918p as its Mahogany-2 appraisal well, in the West Cape Three Points licence, came in better than expected, confirming the massive prospectivity of the Jubilee field. ‘The confirmation that Mahogany-2 is in communication with both Mahogany-1 and Hyedua-1, reinforces our interpretation that Jubilee is a major discovery and is likely to lead to a material upgrade of current resource estimates,’ says chief executive Aidan Heavey. ‘We will continue our appraisal and development programme over the remainder of 2008 with the overall objective of achieving first production in 2010.’

The stock rocketed so fast that Phil Corbett, of ABN Amro, saw his increased price target of 835p, set in response to Tullow’s announcement, breached before the morning was out. He reiterated a ‘buy’ recommendation on the stock and says: ‘We expect the prospect of incremental drilling news flow from Ghana and Uganda to maintain positive sentiment in the near term.’

Richard Griffiths of Evolution Securities, also increased his target price on the stock up to £11.’The P50 reserves estimate has jumped from 480 million barrels of oil or equivalent (boe) to 1000 million boe while the P10 moves from 1400 million to 1800 million boe. The well’s success increases the chance of success on the nearby Teak prospect and points to the West Transform Margin basin as being a prolific,’ he says. If Jubilee comes in at the upper end of expectations then there is scope for this target price to move to 1300p.’

Tullow made the leap into the FTSE 100 last year off the back of the successful Mahogany-1 appraisal well and has more drilling planned to fully assess the scope of the play it has opened up off the coast of Ghana. The next well, Hyedua-2, will be spudded in July in the Deepwater Tano licence.

Elsewhere Uganda, which has been overshadowed by Ghana, offers further cause for excitement. The Kingfisher-2 appraisal and exploration well has just spudded on Block 3A. It is targeting a deeper reservoir in one of the key prospects the company has identified on Lake Albert in the south of the country.