Tullow writes off US$60M on low-quality Guyana oil wells

…low prices dampen future prospects

It was a disappointing 2019 for British oil company Tullow. It was forced to write off US$1.2 billion in wells that were not financially viable, with further write-offs announced for 2020. Included in the 2019 amount is US$60 million for three wells Tullow drilled offshore Guyana but could not continue working on.

The three wells – the Joe, Jethro and Carapa-1, were all deemed not to have been financially viable due to the low-quality oil they contained. According to Tullow Executive Chair Dorothy Thompson in her contribution to the 2019 Annual Report, investors are frustrated with the drilling campaign in Guyana.
“In line with our exploration strategy, we drilled three wildcat exploration wells, acquired promising acreage, and ensured all prospects were subject to rigorous scrutiny. The Joe and Jethro discoveries in Guyana were ultimately disappointing with lower oil quality discovered than originally prognosed, and investors were frustrated,” she said in the recently released report.

“The Carapa-1 well confirmed the presence of hydrocarbons and importantly, supports the potential of the Cretaceous play from the Exxon-operated Stabroek license on both the adjacent Kanuku and Orinduik licenses,” Thompson also said, while adding that they would have to consider carefully how to proceed in Guyana for 2020.
Thompson also said that the Board was disappointed with the financial and operational performance for 2019 and went on to apologise for this in the report. In fact, Tullow’s performance in 2019 led to a shakeup in leadership in the company.
Chief Executive Officer, Paul McDade, and Exploration Director, Angus McCoss, both resigned in December after being stalwarts at the company for over a decade. The duo had previously presided over discoveries from West Africa to Guyana.
“The Board was disappointed by the operational and financial performance, and the overall executive leadership of Tullow’s business in 2019. On behalf of the Board, I would like to apologise for this poor performance,” she said, adding that “the lower quality of oil found in the Jethro and Joe discoveries in Guyana was a further setback.”
“The next steps in Guyana will be to integrate the three well results into updated geological and geophysical models, with a focus on the high-grading of the Cretaceous portfolio where better quality oil is expected across both the Kanuku and Orinduik Blocks.”
Going forward, Tullow also noted that the falling oil prices could adversely impact its future financial results and position should the downward trend continue for an extended period of time.
Since the novel coronavirus hit globally, it has had a serious impact not just on lives but also the global economy and specifically, oil. As of March 27, Brent crude has been trading at US$25 a barrel.
Brent crude was being traded at US$66 per barrel when Guyana first started oil production in December 2019. Rystad Energy, a Norway-based research company that has written extensively on Guyana’s oil sector, has projected that the situation will get worse.
According to Rystad in a recent missive, the spread of the coronavirus has dealt a blow to the global demand for oil. It noted that in February of this year, the demand for crude dropped by 4.6 million barrels per day. China, where the coronavirus had originated, made up 2.9 million barrels of this cut to demand.