--Tullow ends operations at Jaguar-1 well after "pressure design
limits for safe operations prevented further drilling"
--Tullow said early drilling had yielded some signs of light
oil
(Updates with additional background information, analyst
comments in fourth and ninth paragraphs, and share price for CGX
Energy in last paragraph.)
By Alexis Flynn
LONDON--U.K.-listed oil explorer Tullow Oil PLC (TLW.LN) said
Monday it has decided to abandon a high-pressure oil well it was
drilling off the coast of Guyana due to fears it could become
unsafe.
The company said in a statement it had preemptively ended
operations at the Jaguar-1 well, "after reaching a point in the
well where the pressure design limits for safe operations prevented
further drilling to the main objective."
Tullow's caution, coming just weeks after the French government
briefly suspended drilling offshore nearby French Guiana due to
environmental concerns, underlines the intense scrutiny on the
safety of offshore drilling since the disastrous Deepwater Horizon
blowout and oil spill in the U.S. in 2010.
It also underscores the risk and effort of developing a new
offshore oil area. Oil companies are betting that the area off
South America's northern coast could have oilfields similar to
those discovered across the Atlantic in offshore West Africa. But
the trouble with Jaguar-1 means that tapping the region is going to
require "more difficult, more expensive drilling than was first
expected," said Robert Gillon, an analyst with IHS Herold.
Despite not reaching its target depth, Tullow said early
drilling had yielded some signs of light oil.
Tullow has spear-headed exploration off the largely ignored
northeast coast of the South American continent. It made the first
major discovery offshore French Guiana in September 2011, along
with partners Royal Dutch Shell PLC (RDSB, RDSB.LN) and Total SA
(TOT, FP.FR). It has licensed large areas for exploration offshore
neighboring Suriname and Guyana.
The Jaguar-1 well is one of 35 prospects that Tullow is
appraising world-wide. The firm has carved out a reputation for
exploration success, making more notable oil discoveries than many
of its larger, better-known peers in recent years. However, Tullow
earlier this month highlighted the cost of drilling unsuccessful
wells, announcing it would write down some $440 million of oil and
gas discoveries that had proved to be less lucrative than initially
hoped.
Analysts at Bernstein Research played down the significance of
the well abandonment. "Jaguar was one of the largest prospects in
Tullow's pipeline this year...All that has changed is the likely
timing of the well, and we now know that the basin is oil
generating," Bernstein said.
Anish Kapadia, an analyst with Tudor, Pickering, Holt & Co.,
said this well cost about $160 million, and given the pressure
issues, the next well could cost north of $200 million "and may
cause a rethink of whether it makes sense to drill."
Tullow shares were down 3.3% at 1,386 pence a share, in a flat
market. CGX Energy Inc. (OYL.V), a Canadian firm that is a partner
in the well and that owes a lot of the recent appreciation of its
stock to its bet on offshore Guyana, saw its shares drop 40% to
$0.26 Canadian dollar.
-James Herron and Angel Gonzalez contributed to this
article.
Write to Alexis Flynn at alexis.flynn@dowjones.com