It is getting busier in Tullow Oil's northern Kenya region as the UK oil firm gets closer to making its first commercially viable discovery - a prospect that could change the oil-play in the East African region. On the London Stock Exchange, Tullow Oil's share price is gradually turning out into a must-watch, with a top international investment brokerage firm, Credit Suisse, offering a strong recommendation for the stock in light of the change in fortune in Kenya. Tullow Oil this week said it was assembling more rigs to expand its drilling activities beyond the Ngamia well, the site of its first discovery in March. In a statement, Tullow made comparisons with Uganda - laying out the ground for more business rivalry between the two East African states.
Credit Suisse pointed out that it was increasing Tullow's target price, which reflects the right value of the stock, "due to increasing the resource potential on Ngamia, adding Twiga to the 2012 drilling programme, and some conservative de-risking elsewhere in Kenya."
Before it started on its other wells, Tullow drilled deeper into the Ngamia well, discovering what it says is better than what it has ever come across since venturing into East Africa.
"The net pay encountered so far in Ngamia-1 is more than double that encountered in any of our East African exploration wells to date. We now look forward to the drilling and evaluation of the deeper potential of this well and the acceleration of our seismic and drilling campaigns in the region," said Angus McCoss, Tullow Oil's Exploration Director.
The net pay is the portion of an oil reservoir that is thought to be commercially viable. The statement noted that plans were underway to drill more wells, and that Tullow had advised the Kenyan government to source for another rig to facilitate these activities.
"The Ngamia structure is the first prospect to be tested as part of a multi-well drilling campaign in Kenya and Ethiopia. Many leads and prospects similar to Ngamia have been identified and following this discovery the outlook for further success has significantly improved," noted the statement. At least two other wells are to be drilled soon.
By noting that the discovery of net pay in the Ngamia is better than any of its East African discoveries appears to send a message that the Kenya prospect could be better than Uganda. "The basin where the Ngamia discovery has been made is one of seven basins mapped in Tullow's acreage and is similar in size to the Lake Albert Rift Basin in Uganda," the statement said. Like Uganda's, the oil discovered in Kenya is also waxy.
Ugandan officials have previously suggested that Kenya still had a long way to get to where Uganda was. Ugandan officials front the oil discovery rate - of at least 90% - as one of the best anywhere in the world. Nevertheless, Uganda can no longer afford to ignore events in Kenya; while Tullow says it remains fully committed to its Uganda operations, one cannot rule out the temptation of becoming more aggressive in the Kenyan oil basins if the rewards are better.