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UPDATE 2-Tullow eyes first commercial oil for Kenya

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(Globalpost/GlobalPost)

* "First potentially commercial production"

* Still a lot of exploration and appraisal to do

* Shares up 5.2 pct

By Andrew Callus

LONDON, Feb 13 (Reuters) - Africa-focused oil company Tullow Oil Plc released a set of Kenyan well test results on Wednesday which it said could lead to the country's first commercial production.

Tullow, which has been under pressure to deliver some good drilling news after a disappointing trading update in January, said results from its Twiga South-1 well showed "the first potentially commercial flow rates achieved in Kenya."

The London-listed company has operations in several African countries but investors see its Kenyan drilling as particularly important.

Four flow tests were carried out on Twiga South-1 in January and early February and a fifth test is ongoing, Tullow said, predicting a total combined flow rate of over 2,850 barrels of oil per day for the well in western Kenya.

"That's better than the 500 barrels a day... they discussed as an expectation," said Macquarie analyst Mark Wilson. "They've pulled a rabbit out of the hat there on operational progress."

Energy Ministry Permanent Secretary Patrick Nyoike welcomed the development. "There will be more focus on Kenya as a potential oil producing country," he said.

Tullow's shares were up 5.2 percent at 1,241 pence at 1015 GMT, the second-biggest gainer in Europe.

The tests also provide "real encouragement" for Ngamia, another Tullow prospect in Kenya's Rift Basin, the company said.

The Weatherford-804 rig that was drilling at Twiga South-1 will now move to Ngamia-1A to re-enter the well there and perform four flow tests.

Tullow said these tests are expected to deliver rates similar to Twiga South-1.

To temper expectations Tullow said it will require considerably more exploration and appraisal before the commercial threshold for the basin is achieved.

Another keenly-watched prospect in its Kenya-Ethiopia portfolio, the Paipai-1 well, encountered "difficult hole conditions" Tullow said. It hopes to draw some conclusions on it by the end of February.

Africa Oil is a partner at Twiga South-1 and Afren Plc is a partner at PaiPai.

Although one of the industry's best performing drillers of recent times, with a record 49 wells planned this year, Tullow had a mixed year in 2012.

On the production side, it reaffirmed January's guidance for 2013 at 86,000-92,000 barrels of oil equivalent per day.

Pretax profit from continuing activities before tax increased by 4 percent to $1.12 billion, in line with analysts' expectations.

A $701 million pretax gain from the sale of part of its Ugandan operations to large international oil companies CNOOC and Total to help fund its exploration programme was largely offset by $671 million of writedowns and by higher operating costs in mature fields. 

Tullow wrote off $300 million for failed drilling activities last year and took a $371 million asset writedown at the half year.



http://www.globalpost.com/dispatch/news/thomson-reuters/130213/update-2-tullow-eyes-first-commercial-oil-kenya