Tullow’s shares surge 20% following significant oil discovery in Ghana

SHARES in Tullow Oil rose by over 20% in London yesterday, an increase of 159.50p after it announced a significant column of “light oil” in one of its appraisal wells in Ghana.

The find on the group’s Jubilee field suggests the discovery is bigger than originally thought.

The significance of the discovery is that proven reserves in the field have to be revised upwards to 500 million barrels from 170m.

Tom Hickey, Tullow’s finance director, said the find in reality raises the discovery to one billion barrels with significant reserves in place for good measure.

Hickey expressed surprise at the surge in the share price, suggesting an increase of £1 in the price would have been more in line with the announcement.

Unproven reserves in the region have also improved from 1.3bn barrels to 1.8bn.

Broker reaction to the discovery has been broadly positive.

Merrill Lynch has revised its share price target up to £10 per share, while Davy Stockbrokers, who represent the company, has put a new price target of 920p on the stock, up from 818p earlier.

Tony Alves, analysts with KBC Reed Hunt said sentiment behind the company was quite strong given oil prices of $120 per barrel.

Alves said the net asset value of the group’s reserves now is 276p with the potential to go to 536p following the latest announcement.

That’s still a long way short of the current value of 919.5p hit yesterday. Other brokers warned that any shift downwards in the price of oil could have a material impact going forward.

Tullow Oil will now begin a limited flow test on Mahogany-2 to determine potential production rates from the reservoirs. Testing is expected to take around four weeks.

Three more Jubilee appraisal wells are planned for 2008 and the hope is that these will also be successful “even if they may not prove to be as big as the current discovery”, said Mr Hickey.


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