Tullow: Uganda Ngassa Well May Be Large Oil Find

LONDON (Dow Jones Newswires), Aug. 26, 2009

Tullow Oil said Wednesday that drilling data indicate one of its key prospects in Uganda, Ngassa, may contain significant oil resources.

The Ngassa-2 well found signs of oil in two reservoir intervals at higher pressures than normal. Given that the maximum reservoir area is over 150 square kilometers, "this could indicate the possibility of a significant discovery," Tullow said. The company is still evaluating the well and will provide more conclusive results in a few weeks, said Exploration Director Angus McCoss.

Tullow and partner Heritage Oil Ltd. (HOIL.LN) have discovered recoverable resources in excess of 700 million barrels of oil equivalent in the Lake Albert region of Uganda so far, paving the way for a large export project and boosting the shares of both companies.

The early results from Ngassa-2 are very encouraging and could add 10 pence to 20 pence to the share price as a starting point, said Royal Bank of Scotland analyst Phil Corbett.

Some analysts estimate that Ngassa could contain another 600 million barrels of oil equivalent.

"Our exploration campaigns continue to deliver material discoveries," said Aidan Heavey, Tullow's chief executive. "Tullow is well positioned for significant production growth from 2010 and beyond."

Over the next 12 months, Tullow plans to drill exploration and appraisal wells in Côte d'Ivoire, Ghana, Sierra Leone and Uganda, which have the potential to add material resources, the company said.

The result of the Venus-B well drilled offshore Sierra Leone in the next few weeks is particularly important, said McCoss. That well is at the far western edge of a geological system that includes large oil discoveries offshore Ghana. If Venus-B finds oil, it could substantially raise the likelihood of making further discoveries offshore Côte d'Ivoire, Sierra Leone and Liberia, McCoss said.

Tullow has delayed a couple of important appraisal wells offshore Ghana. The Tweneboa-2 well to appraise a light oil discovery has been pushed back from September to early next year. The Teak exploration well has also been delayed from November to the first half of 2010.

Chief Operating Officer Paul McDade said this merely reflects a shuffling of priorities in order to accelerate the development of the Jubilee discovery.

Tullow's first-half profit from continuing activities, attributable to equity holders of the parent, fell 83% to GBP21.6 million, compared with GBP124.0 million in the same period in 2008, following the drop in the oil price and a 16% fall in production.

The output drop reflects "the decision to primarily focus 2009 capital investment in Ghana and Uganda," which hold the largest reserves but aren't yet producing, the company said.

Heavey said Tullow remains in a strong financial position to fund the Ugandan and Ghanaian developments. At June 30, Tullow had net debt of GBP429.8 million and an unutilized debt capacity in excess of GBP454 million.

At 0746 GMT, Tullow shares traded 2.7% lower at 1066 pence in line with a weaker U.K. oil sector. The shares are up more than 60% since the beginning of the year, however, following a string of exploration successes.  

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