Tullow Oil announced results from the Owo-1 sidetrack well, drilled to appraise the Owo discovery offshore Ghana. The well extended the oil-bearing reservoir thickness of Owo to 69m, plus another 19m of gas/condensate reservoir. No water contact was found, so these are minimum thicknesses and likely to be increased with further drilling. Our estimates are that Owo could hold 15-20 MMbbl of recoverable oil per sq km, so a relatively small field would still be a significant find. Upcoming appraisal wells are crucial in delineating the field.
Owo is on the Deepwater Tano license ((TLW 49.95%, alongside Anadarko (APC, $52.91, Neutral) with 18%)) next to the Tweneboa discovery; TLW estimates upwards of 1.4 billion boe in place in the area. Additional barrels in Ghana will add to TLW’s contingent and eventually commercial reserves, which we see as the path to increasing value, but how much won’t be clear until the company states updated reserves next year.
In Uganda, no new headlines, but what we’re hearing is not ideal. The Ugandan government continues to demand the $405 MM it says it’s owed in capital gains tax on TLW’s purchase of Heritage’s (HOIL LN, £3.26 intraday, NR) Ugandan assets. Local press has reported that Eni (E, $42.37 intraday, Neutral), the original bidder for HOIL’s stakes that was pre-empted by TLW, has re-upped some of its service contracts in country, and our sources in Uganda indicate that Eni staff have been in the country in recent weeks. Eni may view TLW’s troubles as an opportunity to get into Uganda on favorable terms – when originally bidding, Eni laid out a development plan to spend an estimated $8-9 billion in Uganda.
When TLW paid $1.45 billion for HOIL’s assets, management put about 2/3 of the disputed $405 MM in escrow. As far as HOIL is concerned, until a decision is made by an independent arbitration committee, it has no intention of releasing those funds. Meanwhile Uganda has canceled TLW’s license on Block 3A, and it is possible TLW will have to compete with other foreign oil companies to regain control of the assets.
TLW doesn't break out its African commercial and contingent resources by country, but based on the HOIL deal ($1.45 billion for 50% of two out of three blocks); TLW's total Uganda position could be worth over $4 billion. Uganda has indicated that it could be favorably disposed to TLW’s application given the company’s history in country, but is adamant that the tax issue be resolved in its favor. We remain at Neutral.
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