Tullow, Northern and Wessex tumble on well failure

Shares in Tullow Oil dropped almost 8% on Tuesday as the resources firm announced no indications of hydrocarbons were observed in its GM-ES-4 exploration well in French Guiana.

The well will be plugged and abandoned.

Tullow has a 27.5% stake in the Guyane Maritime licence and is partnered by Royal Dutch Shell, which is the operator with 45% ownership. Total holds 25%. The remaining 2.5% portion is held by Northpet, a company that is 50% owned by Northern Petroleum and 50% by Wessex Exploration.

Shares in Northern and Wessex plunged more than 7% and 28% respectively following the news.

Separately, Tullow announced that despite the Cachalote-1 exploration well in Area 2, offshore Mozambique, discovering a gas-bearing reservoir in an Upper Cretaceous deepwater channel system, it was unlikely to be commercial on a stand-alone basis. Following completion of logging operations, the well has been plugged and abandoned.

Tullow has a 25% interest in Areas 2 and 5 in the Romuva Basin, also offshore Mozambique. Statoil, with a 40% interest, is the operator, while INPEX has a 25% non-operated interest. ENH (Empresa Nacional de Hidrocarbonetos) has a 10% carried interest.

Analyst view on Tullow Oil

"Although these wells were not high impact in terms of net asset value, the results are disappointing, especially when set in the context of recent poor drilling news flow," commented analysts at stockbroker Killik & Co.

However, they stressed: "More important are the forthcoming announcements from Kenya and Ethiopia, and news flow on potential farm-downs in Uganda and Ghana."

Malcolm Graham-Wood of VSA Capital added: "This now marks eight dry or uncommercial holes in a row for Tullow.

"Our model had factored c. 5p (risked) for the two holes, but we anticipate the stock could weaken more than this due to the ongoing trend in 2013."

Investor view on Northern Petroleum

'Savenierres', a user of Interactive Investor's Northern Petroleum discussion board, pointed out that there was still one well in the current programme in French Guiana.

The user commented: "Even if that next well makes a good discovery, that will still not provide a sufficient basis for Zaedyus to be declared commercial because 1) discoveries cannot be declared commercial without appraisal wells which validate them (and they won't get done in the current programme) and 2) the extreme depth of the water, combined with the lack of any local infrastructure, makes the threshold for commerciality unusually demanding - so even discoveries which look good might be uneconomic in isolation.

"That means that the partners will not be able to declare recoverable reserves at Zaedyus."

The private investor added that the choices facing the Northpet joint venture would be to either relinquish the licence, undertake further exploration and appraisal at a future date or "think about it for an indefinite period" before deciding to do either.

"In my honest opinion, as far as Northern Petroleum is concerned, for the foreseeable future, Guyane is worth at best zero and at worst a negative value," 'savenierres' concluded.

Investor view on Wessex Exploration

'Doodlebugger', a user of Interactive Investor's Wessex Exploration discussion board, took a more risky view, stating: "I guess if the price drops below a [penny] on this news, might be worth buying a few for a final throw of the dice."