Tullow to Accelerate Kenya Exploration After First Discovery

Tullow Oil Plc (TLW), the London-based explorer with the most licenses in Africa, plans to accelerate drilling in Kenya after making the East African nation’s first discovery earlier this year.

Tullow will bring in two additional rigs next year, Chief Financial Officer Ian Springett said today in an interview. Alongside Africa Oil Corp. (AOI), Tullow is deploying two rigs in Kenya and one in Ethiopia this year to confirm reserves in the new African oil province after the Ngamia-1 well discovered more than 100 meters (330 feet) of light oil.

“It’s absolutely a fantastic start as it exceeded our expectations and there’s a lot more drilling to come,” Springett said. “It’s conventional oil, it’s very similar to Uganda but a much bigger first discovery.”

Tullow forecast Kenya has the potential to exceed Uganda, where together with Total SA and Cnooc Ltd. it plans to invest more than $10 billion to unlock an estimated 2.5 billion barrels of oil. The U.K. company’s Kenyan exploration acreage may hold as much as 10 billion barrels of oil resources, Tullow’s Exploration Director Angus McCoss said on a conference call with analysts.

“It’s a high-risk upside with a lot of exploration yet to do but certainly the size of the prize after Ngamia is potentially bigger,” he said.

Well Suspended

The company stopped the Ngamia-1 well for testing later this year. Africa Oil today said that the well encountered an additional 43 meters of “potential oil.”

The explorer said a potential export pipeline from Uganda could cross Kenya to bring oil to a port on the Indian Ocean coast.

“The export pipeline is the key discussion point now,” Springett said. “At the same time the discoveries in Kenya add both the extra likelihood and extra benefit in terms of even more oil being exported from that part of East Africa.”

Tullow’s first-half output averaged 77,400 barrels of oil equivalent a day. Production is expected to exceed 90,000 barrels a day by the end of the year, according to a statement today.

“Clearly, the Kenya play has been a major first-half positive,” said Stuart Joyner, head of oil and gas analysis at Investec Securities Ltd. in London.

The company has been applying acid-stimulation methods, which are designed to boost production, to its Jubilee field off Ghana to almost double output to 120,000 barrels a day next year. It will spend less than the forecast $400 million on the field work because it’s a “lot cheaper solution” than re- drilling the wells, Springett said.

“We don’t expect that we have to do any more recompletion,” the CFO said. “Jubilee production will be motoring ahead” in the second half.

“Reservoir acidization is a common solution at other fields,” Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London, wrote in an e-mailed report. “Good news for costs.”

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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