Energy Roundup: Tullow And Total Make Important Discoveries as Cairn Falters

by: Evaluate Energy

Tullow Makes French Guiana Oil Discovery, New Basin Unlocked

Tullow Oil (OTCPK:TUWOY) this week announced a major success with its Zaedyus exploration well in French Guiana in South America. The Zaedyus exploration well was drilled in the Guyane Maritime license, and made an oil discovery, encountering 72 metres of net oil pay in two turbidite fans. The well was drilled in water depths of 2,048 metres and has been drilled to a depth of 5,711 metres. Drilling operations will now continue and the well will be deepened to over 6,000 metres to calibrate the deeper geology. The well will then likely be sidetracked to enable cores to be obtained over the reservoir sections.

The oil discovery is of huge significance for Tullow and the region as a whole. The objective of the Zaedyus exploration well was to determine if there was any substance to the theory that the Ghanaian Jubilee Play was mirrored on the other side of the Atlantic. The Jubilee field has been a huge success for Tullow, having been discovered in 2007, achieving first oil around the start of 2011, and now production is expected to reach 120,000 bopd by year end. This new discovery proves the theory, opening up a new basin, which holds several other prospects that have already been mapped. The Zaedyus results also significantly reduce exploration risk for Tullow’s prospects in the neighbouring countries of French Guiana, namely Suriname and Guyana, and investment in these areas is now likely to pick up.

Success for Total in the Caspian Sea

Total (NYSE:TOT), along with its partners SOCAR and GDF SUEZ, announced that it has made a major gas discovery on the Absheron Block, in the Azerbaijan sector of the Caspian Sea. The Absheron X-2 well, located 25km north-east of the Shah Deniz gas and condensate field, encountered 500 feet of cumulated net gas pays within high quality sands. Absheron X-2, already at 6,650 metres, is to be extended further to investigate other promising structures. This will be followed by well testing, which Total expects to confirm the reservoir’s potential to contain several trillion cubic feet of gas and associated condensates.

Production Returns to Liberated Libya
In Libya, with Gaddafi's regime now all but defeated, operators who were forced to flee following the uprising in February, have continued their tentative re-entry into the country. With the Transitional Council promising to uphold operator contracts, 5 international oil companies, including Enersis (ENI), had already returned in early September. This week two domestic companies, Sirte Oil and Arabian Gulf Oil Co, have both resumed production within various oil and gas fields mainly to the east of Libya. Estimations for the timescale involved in restoring production to the pre-war level of 1.9 million boe per day are varied, with the full extent of damage to oil facilities resulting from hasty shutdowns yet to be assessed. Broadly in line with the consensus, the International Energy Agency (IEA) gives an estimation of 18 months till full production with 400,000 boe/d onstream by the end of the year. This forecast is likely to be reliant on the assumption that support for the still-at-large Gaddafi, will be too weak to mount his promised guerrilla war on the country.

Statoil & BP Give Green Light to North Sea Projects

Statoil ASA (NYSE:STO) and BP proved this week that despite not having the most attractive tax rate in the world, the UK North Sea is sufficiently attractive for major oil companies. Despite the widely criticised move by the UK Government to raise the supplementary charge on oil and gas production from 20% to 32% in the March 2011 Budget, both companies have announced new development plans. Statoil has presented the chosen concept for the development of the Mariner heavy oil project, consisting of a production, drilling and quarter (PDQ) platform based on a steel jacket, with a floating storage unit (FSU). The final investment decision is expected in late 2012, with first oil in late 2016. The company's Bressay heavy oil project is also progressing according to plan. BP, meanwhile, unveiled its own North Sea plans to invest £700m in the development of the Kinnoull Field, which it will connect to its Andrew platform and enable production to be extended to 2020 and beyond. This follows hot on the heels of BP announcing a £3billion investment to redevelop the Schiehallion and Loyal oil fields as it continues to rebuild following the fallout from the Deepwater Horizon disaster last year.

Cairn Struggling in Greenland

Cairn Energy (OTC:CRNCF) suffered another setback this week with its operational update of activities in Greenland. The Gamma-1 exploration well reached total depth, having failed to encounter hydrocarbon shows and will now be plugged and abandoned. This follows on from the similarly disappointing result of the LF7-1 well. Cairn was awarded interests in Greenland following the Baffin Bay licensing round in December 2010. The three wells drilled last year, whilst discovering oil and gas, failed to encounter significant target reservoir rocks.

Following the divestment of its assets in Bangladesh to Santos and a large percentage of Cairn India to Vedanta, the company may be beginning to regret intensifying its efforts on the frontier basin. Arctic drilling is very expensive and often at the mercy of the weather and ice flows, so if all the drilling in the area this year comes up dry then the market may perceive Cairn’s involvement there to be a negative. On top of this the company has suffered reputational damage from the continuing protests of environmentalists who remain concerned about the potential impact to wildlife and the local area from drilling in the remote region.

Cairn’s hopes of high impact exploration success may now rest with Lebanon, where the company intends to participate in next year’s licensing round.

Sea Lion Continues to Deliver for Rockhopper

Rockhopper Exploration’s (OTCPK:RCKHF) recent success with the drill bit offshore the Falkland Islands continued with news from its 14/10-7 exploration well, in license PL032. The well location was outside the Sea Lion discovery area toward the northern limit of the currently mapped extent of the Sea Lion main complex. Bearing this in mind, the expectation was for just a few metres of net pay; however the main fan delivered 25 metres of net pay despite being 3.3km to the northwest of the original 14/10-2 discovery well. The fact that the main fan remains so thick this far away bodes well for a further reserves upgrade ahead of the official CPR to be commissioned at the beginning of 2012. Before this well, the company estimated the field to contain 325mmbbls of recoverable oil.

Separately, Rockhopper has outlined a comprehensive plan for the development of Sea Lion using a leased Floating Production Storage & Offloading vessel (FPSO). It estimates that first oil will be achieved by 2016, with maximum daily production reaching 120,000 bopd by 2018. The main stumbling block for the company now concerns the estimated $2billion required to first oil. Although credit availability has likely tightened recently, the quality of this project should have no problems attracting financing. In addition, Rockhopper owns 100% of the licence, so a farm-in with a major remains a distinct possibility.

Sea Lion is looking more and more like a world class discovery, and though sceptics still point to a lack of local infrastructure or nearby market, finds of this size are rarely in isolation and in any case the use of an FPSO negates this argument given that the oil can be shipped back to South Africa or Europe.

Gran Tierra Announces Two New Discoveries in Latin America

Gran Tierra Energy (NYSEMKT:GTE) had a busy week, announcing two new oil discoveries in Latin America. In Colombia, initial testing of the Melero-1 well in the Garibay block, Llanos basin, was completed. The well achieved average production of 922 bopd of 16.8 degrees API gravity with a 0.3% water cut obtained from an interpreted 16 feet of net pay in the Upper Mirador reservoir. Gran Tierra owns a 50% interest in the block, with Spanish company CEPSA holding the other half and operatorship. Gran Tierra also has a 35% interest in the Rinconada Norte Block in the Neuquén basin in Argentina, where another new oil discovery was announced this week. The basin has mostly been in the news recently for its Vaca Muerta shale oil discoveries, but this discovery bucks the current trend for the basin as it is a conventional discovery. The testing of the RN x-1004 well resulted in an average production of approximately 1,023 boe/d from two intervals tested separately in the Precuyo formation.

Licensing Round-Up

State-owned China National Petroleum Corp, (CNPC) is the big winner in Afghanistan, as it was awarded the Kashkari, Bazarkhami and Zamarudsay blocks located in the Amu Darya basin, in the northwest. The blocks are estimated to contain 80 million barrels of oil, but are unlikely to be producing before 2014 as historic relics have been found on site. The blocks complement CNPC’s producing assets over the border in Turkmenistan as they are within the same geological formations.

Iraq has decided to add Glencore International (OTCPK:GLCNF), Vitol, Dragon Oil (OTC:DRGIY), Gulfsands Petroleum (OTC:GFPOF), Zhenhua Oil and Romgas to the list of pre-qualified companies eligible for the 4th Bidding Round, scheduled to take place in late January 2012. Hess Corp. (NYSE:HES) has been excluded, as the Baghdad Oil Ministry is unhappy about it signing contracts with the Kurdistan Government that it deems illegal.

State-owned ANCAP has also announced a new license round in Uruguay. This second round will see the country offer licenses for 15 new offshore blocks, 11 of which ANCAP classes as deepwater. The Latin American country was encouraged by the recent discoveries offshore Brazil, and plans to award contracts by mid-2012. ANCAP expects the winning companies to determine whether crude oil or natural gas deposits exist within four to five years.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.