BMI View: Tullow's share price saw big gains following reports that recent discoveries in Kenya may indeed be commercial. The news was welcome for both Tullow and for Kenya's efforts to become a producer of oil. We maintain our view that Kenya could well outperform other frontier plays should exploration confirm the country is capable of significant commercial production. While we continue to watch regulatory developments with caution , we believe the latest news will only reinforce the excitement surrounding Kenya's prospects with a possible licensing round to come before end Q113.
Better-than-expected results from a flow test reported by Africa heavy Tullow Oil were cheered by the markets, h o ld ing the possibility that its wells could lead to the first commercial oil production in Kenya. I mmediately following the news, the company's share price rose more than 5% on February 13 2013.
This was welcome news for Tullow after a n uncharacteristically mixed drilling record in 2012 , with markets accustomed to a strong performance fro m the London- listed independent ( see our online service, November 1 2012, 'Tullow And Africa Oil Strike Again With Latest Onshore Find ' ). However , results from Kenya 's Twiga South-1 well surpassed expectation s , with a fifth test ongoing . The company predicted a combined flow rate of 2 , 850 barrels per day (b/d) at the well , much better than the 500b/d originally expected.
|Kenya Helps Tullow Reach Higher|
|Tullow Share Performance (GBp)|
Tullow will now move to test its other promising prospect , the Nga mia -1 well some 30 kilometres ( km ) away, where the company made a discovery in 2012 ( see 'Second Discovery Boosts Upstream Appeal ' , May 8 2012 ). The company also plans up to 11 new exploration and appraisal (E&A) well s in Kenya to de-risk its prospect s and to firm up the hydrocarbon s potential of the South Lokichar Basin , where recent discoveries have been made . While the firm has noted a considerable amount of E&A will be necessary before commercial production becomes economic, initial results are extremely promising.
As we have noted previously, with rising interest in frontier exploration across the African continent, Kenya is well placed to outperform comparatively should commercial oil production begin (see 'Betting On A Kenyan Oil Industry' , March 28 2012) . However, while still favourable, recent regulatory developments do represent a trend to watch cautiously as the country continues i t s bullish run towards becoming an oil producer ( see ' A Growing E&P Opportunity, Despite Regulatory Uncertainty', November 20 2012).
The latest news should only bolster interest in hotly anticipated licensing round that Kenyan Energy Ministry officials announced could come before the end of Q113. Up to 9 oil and gas licenses will be offered, with Eni and Chevron reportedly among those interested in getting a slice of the frontier's upstream.