Kenya’s Emong-1 exploration results send Tullow Oil shares tumbling

Story by Bloomberg

Tullow Oil Plc fell the most in more than two weeks in London after the oil explorer said a test well in Kenya failed to find viable crude deposits.

The shares fell 2.3 percent to 759 pence, the biggest decline since March 13. Partner African Oil Corp. fell 11 percent to 44.3 kronor in Stockholm.

The Emong-1 exploration well in Block 13T “encountered poorly developed oil-bearing reservoir sands,” Tullow said in a statement. The well was drilled about 4 kilometers (2.5 miles) to the southeast of the Ngamia-1 discovery.

The two partners have found enough oil in Kenya to make local field development commercially viable. The companies expect to start production and possible sales as soon as 2016, making the first oil exports from East Africa.

“The market will already have assumed a hit” in Emong because of its proximity to Ngamia, Investec Bank Plc wrote in an e-mailed report. “This result will test simplistic assumptions in the market about the drillout of the remaining” potential reservoirs in the area.

The partners also drilled the Etuko-2 well in Block 10BB, which was “designed to evaluate a very shallow reservoir zone,” London-based Tullow said. The well was drilled to 650 meters (2,132 feet) depth and “flowed water with oil shows.”

The companies completed tests on the Ekales-1 well in Block 13T, which flowed a combined rate of over 1,000 barrels of oil a day, Africa Oil said in a statement.

“Water from Etuko-2 is disappointing,” Oswald Clint, an analyst at Sanford C. Bernstein & Co. in London, said in an e-mailed report. “Ekales flowrates could be better but still likely sufficient for development.”