After a few recent disappointments, Tullow Oil has some positive news.
The Africa-focused group said it had struck oil at the Agete-1 well in northern Kenya. This is its fifth discovery in the region, and follows disruption at Tullow sites in Kenya last month after protests by local residents demanding jobs and other benefits. A deal was reached on 8 November with local leaders, allowing Tullow's operations to resume.
At the same time as the Kenyan disruption, Tullow announced a field in the Norwegian Arctic where the company has a 20% stake came up with a dry well which would be plugged and abandoned.
On the new find, Tullow's exploration director Angus McCoss said:
[This] highlights the emerging world class exploration and production potential within our rift basin acreage. An intensive campaign for 2014 includes appraisal and exploration within this first basin and pioneering wells targeting the prospectivity throughout the entire chain of similar rift basins.
Tullow's shares have added 15p to 900p. Thomas Martin at Canaccord Genuity kept his hold rating, saying:
We had expected an oil discovery at this well (we assumed a 75% chance of success) given its close proximity to the Twiga discovery and included 8p a share risked for the prospect prior to drilling. Post drilling we increase our valuation to 22p a share risked. Whilst encouraging, we do not view this result as a step change for Tullow's East African program.
We continue to believe Tullow trades at a premium to the sector, trading at 104% of our central net asset value (discovered resources) versus the sector at 73%. Whilst a premium is warranted given the potential of the Kenyan program, we retain our hold rating and do not yet see the valuation as attractive versus the sector.
[Potential catalysts for the share price include] results from the Fregate well, which is expected to reach total depth in December, and the Tultule well onshore Ethiopia [which] is expected to complete drilling shortly.
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