Morning Equity Briefing
Tullow Oil
(TLW LN)
Extending its African footprint
Job Langbroek
| Closing Price: | $19.02 | Rating: | Outperform | 30/06/09 |
FACTS: Tullow Oil has acquired a 50%-operated interest in six contiguous licences covering the East African rift basins, an area of 97,000 sq km. Blocks acquired are 10BB, 10A, 12A and 13T in Kenya and the South Omo block in Ethiopia. The cost is payment of pro-rata past costs on the blocks and a carry for $23.75m. The work programme is to undertake seismic and commence drilling in 2011. The licences are being acquired from Africa Oil Corp., a Canadian-based company with a 17% shareholding held by the Lundin Group.
ANALYSIS: The purchase by Tullow of these blocks for a cost that will likely end up no more than $35m (including an estimate of past costs) puts Tullow in a front line position in the eastern basins of the East African rift system. It has acquired a very large acreage position at relatively low cost that has evidence of live oil and the other features (reservoir, structure and seal) that make up a working petroleum system. A well exists (loperot-1) on Block 10BB in Kenya that recovered live oil. This means that Tullow now has an operated and material position in possibly the next onshore tertiary basin to be closely explored in Africa. It is directly analogous to the Lake Albert geological architecture with the same type of processes and target genesis created by the (geological) history of the region. It means that Tullow is again in a first mover position.
DAVY VIEW: The purchase sits well with Tullow's expertise in rift basin geology and also its desire to build its African footprint. The blocks require a good deal of work, but even at this early stage the comparison with the Ugandan Lake Albert is compelling. We see the news as a very worthwhile build-up of its African licence inventory and should be viewed positively by the market.