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Tullow's $70 billion bet

[Donran]

More than 90 million years ago, when theland mass of Pangaea began separating into the continents we now call SouthAmerica and Africa, the earth may have produced a lucrative farewell gift: hugeoil and gas deposits along both coastlines where they had previously beenjoined.
Now, Angus McCoss, exploration directorand chief geologist atTullow Oil Plc, which in2007 discovered one of the biggest oil finds of recent years off the coast ofWest Africa, is betting more than $100 million that a similar bonanza awaitsoff South America’s eastern shore, Bloomberg Businessweek reports in its Feb.28 issue.
Tullow and partnersRoyal Dutch Shell PlcandTotal SAby the end of March will start drilling their first deepwater test wellabout 100 miles (160 kilometers) off French Guiana, a sliver of South Americanrainforest best known as a former penal colony. The prospect field, calledZaedyus, lies 21,000 feet (6,400 meters) below the ocean’s surface.
McCoss, who spent most of his career atShell, aims to repeat the success of Jubilee, Tullow’s 120,000 barrel-a-dayfield offGhanaon the otherside of the Atlantic Ocean. He’s optimistic because of evidence that Zaedyusmirrors Jubilee’s geology, formed in the Cretaceous period when the African andSouth American land masses began to separate.
“Tullow has proven more than once they arecapable of thinking outside the box,” says Thierry Pilenko, chief executiveofficer of oil service provider Technip. The idea of twin basins on either sideof the Atlantic is “compelling,” he said.
Bight ofBenin
A glance at a map shows how South Americawould once have fit snugly into Africa’s Bight of Benin. Zaedyus is the firstwell to test the “Atlantic mirror” theory and the payoff could be huge.Computer models estimate the field may hold 700 million barrels in grossreserves, valued at more than $70 billion at today’s oil prices.
“Zaedyus is the most exciting well of theyear, as bold as it gets,” says McCoss, who joined Tullow in 2006. “It’sremarkable to try to open up a new basin in 2011. There aren’t manyopportunities left in the world.”
The world’s largest oil companies missedout on the Jubilee find. Tullow’s partners in Ghana areAnadarko Petroleum Corp. and private equity-backed KosmosEnergy. In French Guiana, however, Shell and Total,Europe’slargest and third-biggest oil companies, have bought shares in Tullow’s fieldand agreed to shoulder the majority of the $110 million cost of surveying thearea and drilling the well.
McCoss says the chance of finding oil fromthe first test well to be drilled in French Guiana is probably about 15 percent.
‘It’s Risky’
“It’s exciting, but it’s risky,” saidYves-Louis Darricarrere, Total’s head of exploration and production. “It’s agood example of how we want to be more bold. I like to associate with those Iadmire.”
Geologists believe that when the AtlanticOcean started opening betweenSouth Americaand Africa, organic sediment resulted in hydrocarbon deposits known astheLate Cretaceousturbidite sands. They haven’t been drilled todate because they are less visible than other types of deposits and drilling atsuch depths has only recently become viable.
“Integrated oil companies aren’t ascomfortable with the risks of drilling these wild cat types of wells asexplorer companies have been,” saysOswald Clint,an analyst at Sanford C. Bernstein. “The deep waters off French Guiana havenever been explored.”
Devil’s Island
French Guiana is an overseas region ofFrancewith apopulation of about 230,000. Starting in the 1850s, the country began deportingconvicts to a penal colony known as Devil’s Island off the coast, a practicethat lasted about a century. Arianespace, the world’s biggest commercialsatellite launcher, launches satellites from Kourou, near the capital Cayenne.
“We’ve been very encouraged bythree-dimensional seismic we’ve shot in French Guiana,” McCoss said, referringto studies of reserves done using sound waves. “We’ve found, as we had hoped,that it is in the heart of a major turbidite sand system.”
Tullow is also a partner in the Jaguarexploratory field off nearby Guyana, scheduled for drilling later this year.Spain’sRepsol YPF SAand Canada’sCGX Energy Inc. are the other participants in that field.Exxon Mobil Corp. also holds offshore Guyanan acreage. InSuriname, a former Dutch colony that sits betweenGuyanaand FrenchGuiana, Murphy Oil, Repsol, Japan’s Inpex, and Tullow hold acreage.
Angola Drilling
Oil companies are preparing to test asimilar theory of reserves mirroring each other across the Atlantic by drillinginto so-called pre-salt formations off Angola. They may resemble structures inBrazilthat scientistssay could hold 124 billion barrels of oil.
Brazil’s state-controlled Petrobras’s Lulafield, discovered in 2006 and formerly known as Tupi, was the biggest find inthe Americas sinceMexico’sCantarell in 1976. BP, Exxon Mobil and Total are among companies that have beenawarded rights to explore the Angolan pre-salt blocks.
London-based Tullow, which isn’t involvedinAngola,plans to invest at least $500 million to drill about 40 exploration andappraisal wells this year.