The Rising Influence of Rising Affluence

[DewDiligence]

This is the APC follow-up from FT.com with some of my annotations.

http://www.ft.com/cms/s/0/0c940ea8-a2e9-11de-ba74-00144feabdc0.html

›Andarko and Tullow Betting Big on Venus

By Carola Hoyos in London
September 16 2009 19:42

“A $40m punt.” That is how one oil company executive described the Venus well drilled by Anadarko, the US oil and gas company, UK-listed Tullow, and their partners off the coast of Sierra Leone.

Tullow itself admitted to analysts that the chance of hitting enough oil to make the exercise worthwhile was about 5 per cent.

Despite its low odds, Venus over the past months has become one of the most closely watched drilling operations in the industry. That is because discovering oil and gas at the well would indicate far more than the presence of just one single field.

Yesterday, the companies – together with Repsol and Woodside, the two other partners – announced that Venus had come up with evidence of hydrocarbons. More importantly, they said that the discovery established a whole new, active hydrocarbons system that spanned at least 1,000km to the coast of Ghana and perhaps all the way to the Latin American nation of Guyana [This makes sense—the two countries’ names are almost the same :- )].

Both Tullow and Anadarko had a lot riding on Venus’s success. True; however, APC’s stake in the project is four times as large: 40% vs 10%.] The companies, both of which are partners in the Jubilee field – Africa’s biggest deep water field – off the coast of Ghana, had snapped up the right to explore much of the coastline between their Ghanaian field and the Venus well.

The cost of the licences was low, reflecting the risk that the companies were taking in an area known better for cocoa and coups than for oil.

Those positions are now a lot more valuable, analysts say. [Ah, the British art of understatement once again :- )]

Aidan Heavey, chief executive of Tullow, said: “There is a very good chance of finding more Jubilee fields between Sierra Leone and Ghana.” The Jubilee field holds as many as 2bn barrels of oil and will turn Ghana into one of the world’s 50 biggest oil producers after it begins pumping next year.

The companies will now try to repeat that success, spending about $3bn and drilling wells in about half a dozen of their best prospects, expanding that programme if those wells are successful. In all, investment could rise to about $15-18bn, if the companies are successful and need to bring big fields to production. [Clearly, other companies’ money will pay for some of this if it should come to pass.]

Based on past comments by Tullow executives, Peter Hitchens, analyst at Panmure Gordon, said the odds were 25 per cent. “That’s really good for wildcat drilling,” he said, referring to the industry term for the risky exploratory drilling Tullow and Anadarko have ahead of them.

Those dramatically improved odds yesterday began to be reflected in the companies’ share prices. Tullow shares rose 9 per cent to £11.87 yesterday.

But Mr Hitchens said that it would take time for the markets to fully understand the potential Venus has opened up. [Today was a good start.] The basin could be a game changer for the industry. Analysts at Sanford Bernstein believe it could attract big companies, which are not present there [duh].‹