Tullow Oil (LON:TLW) shares edged almost 2% higher with the news of its fifth onshore oil discovery in Kenya.
The Agete-1 well, in Block 13T, found 100 metres of net oil pay in good quality sandstone reservoirs.
It is on-trend with prior discoveries in the country - Twiga South, Ekales, and Ngami – and, according to Tullow, it helps open up follow on prospects to the North.
The discovery appears bigger than anticipated prior to drilling and in itself appears significant, however, given the preceding successes nearby investors had largely been expecting a positive result – in fact City brokers had assumed a 75% chance of success.
"A fifth consecutive oil discovery onshore Northern Kenya highlights the emerging world classexploration and production potential within our rift basin acreage,” said exploration director Angus McCoss.
City broker Canaccord Genuity reckons the bigger than expected discovery is worth about 22p per share to Tullow – upgraded from 8p pre-drill – though analyst Thomas Martin doesn’t believe the result will represent a “step change” in the group’s programme in East Africa.
“We continue to believe Tullow trades at a premium to the sector, trading at 104% of our Central NAV (discovered resources) vs the sector at 73%,” the analyst said, in a note.
“Whilst a premium is warranted given the potential of the Kenyan program, we retain our HOLD rating and do not yet see the valuation as attractive vs. the sector.”
Agete-1 was drilled to a depth of 1,930 metres and Tullow will plans to conduct flow testing after logging is completed.
After that, the rig will move on to the drill location for the Ewoi-1 wildcat in the east of the basin.
Meanwhile, drilling is expected to start on the Amosing-1 well before the end of the month, and testing will soon be carried out on the Etuko-1 and Ekales-1 wells.
“An intensive campaign for 2014 includes appraisal and exploration within this first basin and pioneering wells targeting the prospectivity throughout the entire chain of similar rift basins," McCoss adds.
Tullow owns 50% of the exploration venture alongside joint partner Africa Oil.