Interactive Investor

Five oil companies fail in French Guiana

13th November 2013 16:19

by Esther Armstrong from interactive investor

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A five-member oil and gas consortium with interests in the Guyane Maritime Permit offshore French Guiana was forced back to the drawing board on Wednesday after plugging and abandoning its fourth and final well.

There was no evidence of hydrocarbons following a drilling exercise to a total depth of 6.460 metres, according to one interested party, Wessex Exploration.

Wessex decreased its stake in the French Guiana deal last month after doubling its full-year losses over the last year.

The four well exploration programme in Guyane has been underway for the past two years following the Zaedyus well discovery by the consortium back in September 2011.

In the same area, this encountered 72 metres of net oil pay in two turbidite fans and was deemed to be good quality on prognosis.

The objective of the well was to test whether the Jubilee-play successfully established in West Africa was mirrored on the other side of the Atlantic, according to Tullow Oil, another interested party.

At the time the partnership said the Zaedyus discovery opened a new hydrocarbon basin, and planned an appraisal programme and follow-up exploration activities to try and scope exactly how much.

But four wells later, there has been no further discoveries.

Analyst view

Royal Dutch Shell is the operator in the area, with a 45% interest, while Tullow Oil has 27.5% and Total holds 25%. Smaller firms Wessex Exploration and Northern Petroleum hold 2.5% through their joint venture Northpet.

VSA Capital analyst Malcolm Graham-Wood said: "So it is back to square one and probably many months of testing for the Shell operators, while the smaller members try to decide whether to stock or twist. To be honest, Wessez has already thrown in the towel and Northern is financing its share already. This might push them over.

"As for Northern, it is not such a problem, they can afford to wait and see what the other guys do and mop up Wessex costs along the way. The decision won't be easy, the size of the initial discovery was huge and it must be worth another pop."

Investor view

Sentiment on the Interactive Investor discussion boards was not quite as favourable. The focus was on Wessex and Northern because while their interest is small compared with the larger companies, it represents a greater amount of their project portfolio.

Wessex Exploration's share price had almost halved by mid-afternoon, down 48% from 0.87p to 0.46p.

'Brian Helicopter' said: "Guyane - the JV won't be going back here anytime soon. All that Wessex will be doing now is paying precious cash over in operating expenses to a very expensive operator with high overheads (Shell) for doing not a lot."

Adding insult to injury was the fact the board of directors at Wessex rejected a bid for the company back in March 2012, saying the 10p share offer undervalued the company. This decision followed a shareholder consultation.

Meanwhile, on the Northern discussion board investors were equally downbeat.

'Savenierres' said: "The first well made a good discovery. The following ambitious wells all failed. The final well was a relatively unambitious attempt to appraise the discovery without over-reaching. Its failure leaves Zaedyus as an isolated and anomalous discovery which has not been appraised and is surrounded by duds.

"The conditions in that location - including extreme deep water and the total absence of local infrastructure - combine in my opinion to make it completely uneconomic to: a) go back and attempt another appraisal, b) undertake development, or c) establish production operations.

"In view of the above I expect the asset either to be placed on ice indefinitely or to be relinquished depending on the licence conditions. The project is now dead in the water, as frankly, is Northern.”

Northern's share price had tumbled nearly 14% by afternoon, to 33.8p. Tullow Oil, which also released its interim results on Wednesday, was down nearly 3%, while Shell was 2% lower and Total virtually unchanged.

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