OIL: Tullow Stock Sinks on Finding High Sulfur Content in Guyana Crude

Tullow Stock Sinks on Finding High Sulfur Content in Guyana Crude

Paul Burkhardt | World Oil         

JOHANNESBURG (Bloomberg) – Tullow Oil stock fell the most in two decades in London trading after saying it’s reassessing the commercial viability of discoveries in Guyana.

The stock sank as much as 23% on the news that crude from two wells in the South American country was found to be heavy, with a high sulfur content. That’s disappointing to shareholders as the Guyanese discoveries earlier this year had countered concerns over troubled ventures elsewhere.   

“We expect investors to worry about the projects’ value,” Al Stanton, an analyst at RBC Europe Ltd., said in a note. Heavier oil is harder to produce and requires more energy to extract and transport.

Tullow struck oil twice off Guyana this year in a drilling campaign that’s been closely watched following earlier finds in the area by Exxon Mobil Corp.

Tullow’s success in Guyana helped offset concerns over its operations in Africa, where technical difficulties have hampered output in Ghana; while projects in Uganda and Kenya have faced delays.

“The commerciality of both discoveries is still being assessed and our options are being reviewed,” Tullow spokesman George Cazenove said Wednesday. “The quality of the reservoir and the significant over-pressure are positive, and while oil of this type is sold in global markets, we need to do more work on the various parameters.”

Tullow also reduced its 2019 oil-output forecast on Wednesday, citing the problems in Ghana. It now expects to pump an average of about 87,000 bpd this year, down from previous guidance of as much as 93,000 bpd.

The stock traded down 22% at 161 pence as of 10:05 a.m. London time, making it the worst performer on the Stoxx Europe 600 Oil & Gas index. Eco Atlantic Oil & Gas Ltd., a partner in one of the Guyanese blocks, tumbled 50%.

“Tullow remains confident of the potential across the multiple prospects” in the country’s Orinduik and Kanuku blocks, the London-based company said in a statement. Results from the next well in the drilling campaign — Carapa — are expected by the end of the year.

The company forecast full-year capital spending at about $540 million, free cash flow at about $350 million and net debt at around $2.8 billion.


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  • Clyde Duncan  On November 16, 2019 at 3:01 am

    Venezuela Using ‘Dark Ships’ to Secretly Export Millions of Barrels of Oil

    Lucia Kassai | World Oil

    HOUSTON (Bloomberg) – DRAGON, a massive oil tanker flying the Liberian flag, is supposed to be floating somewhere off the coast of France, according to its last GPS signal.

    INSTEAD, it is currently thousands of miles away in Venezuela where, under contract for the Russian state-oil giant Rosneft Oil Co PJSC, it loaded 2 MMbbl of oil, according to data compiled by Bloomberg and shipping reports.

    How is that possible? Because the ship’s transponders were turned off before it slipped into Venezuelan waters, the data shows.

    The practice of oil tankers turning off their location signals has increased in the past month, according to shipping data, after the U.S. went after a Chinese-owned shipping company it said was moving crude for sanctioned Iran.

    The U.S. is seeking to squeeze the Nicolas Maduro government in Venezuela by starving it of oil revenue. But more and more tankers appear to be using the technique to avoid penalties, helping give a boost to Venezuelan crude output that has plummeted since the U.S. imposed sanctions.

    Venezuela loaded 10.86 MMbbl of crude oil in the first 11 days of November, more than double the volume in the same period last month. About half of those barrels were loaded onto ships that had turned off their transponders, which later delivered cargoes to China and India, data compiled by Bloomberg show.

    Dynacom Tankers Management Ltd., the manager for DRAGON, said in an emailed statement that “since January 2019 none of the vessels under our management ever entered into any contract with any U.S. sanctioned entity, nor have they ever violated any U.S sanction either related to Venezuela or otherwise.”

    The company did not comment on why the signal for DRAGON has been off for the past three weeks or confirm if the vessel was docked in the South American country.

    Rosneft, meanwhile, said in an emailed statement that it and its subsidiary RTSA “didn’t charter vessels in this logistic chain.” Its operations involving Venezuela “are based on contracts reached long before sanctions and fully comply with all the rules of international law.” The statement didn’t specifically address the use of transponders.

    While it is possible that transponders, known as Automatic Identification Systems, can go offline, they are typically not out for long. The practice of hiding ships carrying oil isn’t new, and can be done for competitive purposes or for other reasons. IRAN, another OPEC member sanctioned by the U.S. government, also uses dark ships to export its oil.

    The U.S. recently targeted Chinese oil-importers and shippers such as Zhuhai Zhenrong Co. and a unit of COSCO Shipping Corp. for allegedly handling Iranian crude. Zhuhai and COSCO routinely operate their vessels with the signal turned on, ship-tracking data shows.

    Venezuelan oil production — crippled by U.S. sanctions that have limited its buyers and curtailed access to oil tankers — slumped to a fresh 16-year low of 644,000 bpd in September, cutting off funds badly needed by the Maduro regime.

    Unsold oil filled storage tanks and vessels, forcing operators to shut-in production at Venezuela’s oil-producing frontier known as Faja.

    Earlier this year Venezuela masked deliveries to Cuba by renaming sanctioned vessels and turning off the satellite tracking system, according to shipping data.

    The Trump administration wants to cut off the supply of oil to the Caribbean country because it helps to pay for intelligence, defense and security assistance to Maduro, the U.S. Treasury Department said.

    Going dark became more common after companies including Unipec, the trading arm of China’s state-owned oil giant Sinopec, banned the use of oil tankers that have operated in Venezuelan ports over the previous 12 months.

    While Unipec made an official addendum to its charter contracts, others informally avoid ships that have Venezuela as the last port of call, according to people with knowledge of situation.

    Demand for Venezuelan oil ticked up this month as state oil company Petroleos de Venezuela SA won back customers, including the Indian refiner, Reliance Industries Ltd. Tipco Asphalt Public Co. Ltd.; a refiner from Thailand, is also lifting Venezuelan oil in November after a two-month absence.

  • Trevor  On November 16, 2019 at 4:56 pm

    These carrion crows are lying. How is it that Exxon has boasted “sweetest crude in the Caribbean”, yet this British company is claiming the contrary?

    Are they drilling for oil in the Orinoco tar oil basin?

    • brandli62  On November 17, 2019 at 10:57 am

      Different oil fields miles apart from each other. The Tullow stake is closer to shore, Exxon’s oil fields are further out. It’s as simple as that.

  • Clyde Duncan  On November 17, 2019 at 12:48 am

    Trevor: That’s a broad question – The price went DOWN didn’t it?

    This may be the time to back up the truck and BUY !!

    You never know? – Have you heard of a “PUMP and DUMP” scheme?

    Just saying!

  • Clyde Duncan  On November 21, 2019 at 6:44 am

    Why ExxonMobil’s Guyana Success May Have Hurt Petrobras

    The Top Driller in Guyana took a pass on Brazil.

    John Bromels | The Motley Fool

    Oil is a big business with even bigger money attached. That’s why governments that control oil assets are eager to auction them off to the highest bidder in the hopes of getting a major payout.

    But Brazil’s recent oil block auction did not go as planned, and that’s not good for the state-controlled Petroleo Brasilio (NYSE:PBR), usually abbreviated as Petrobras.

    The company and its investors were hoping for a large payday from a change in how the Brazilian government managed its oil, coupled with some big bids from oil companies like ExxonMobil (NYSE:XOM).

    The Nov. 6 auction, though, was a bust. Here’s what investors need to know.


    We’ve known for a long time that there was oil in South America: Venezuela was a founding member of OPEC in 1960, and Ecuador first joined in 1973. And until 1995, Petrobras had a monopoly over Brazilian oil production.

    In 2007, things changed when the Lula field was discovered in the so-called “pre-salt” offshore province. Lula is believed to be one of the largest oil discoveries of the last 30 years, but upon its discovery, the Brazilian government promptly stopped auctioning off “pre-salt” exploration blocks, essentially keeping the blockbuster find to itself and Petrobras.

    Lula was just the tip of the iceberg. Petrobras ended up discovering a lot more oil in the pre-salt than it was authorized to develop. So, in 2016, Brazil’s government ended Petrobras’ monopoly over the pre-salt, and this year put four major pre-salt blocks up for auction in an event it called the biggest oil auction in history. The country expected to reap as much as $26 billion from the auction as companies like ExxonMobil scrambled to get a piece of the promising pre-salt play.
    At least, that was the idea.


    Representatives from ExxonMobil were present at the auction, increasing speculation the company would make a play for one of the four blocks up for bidding. But it didn’t. And, aside from Petrobras itself, neither did pretty much anyone else.

    Two of the four blocks received no bids at all. One received the minimum bid from Petrobras. Buzios, the largest block, which was considered the marquee prize of the auction, also received only one bid (the minimum) from a joint venture between Petrobras and China’s CNOOC and CNODC. But Petrobras owns 90% of that venture while the Chinese entities hold just 10%, so the amount of total foreign investment received was minimal.

    Some observers blamed the high price for the lack of participation: Companies were not only expected to put up a large portion of their bids upfront — at least $17.1 billion for the Buzios block alone — but bidding companies would be required to compensate Petrobras for its prior work exploring the block.

    Additionally, in an October interview, a Brazilian government official had revealed a pending rule change to give Petrobras the rights to market any pre-salt barrels of crude that were collected by the government. That would be a significant amount of oil:

    The minimum amount for any of these blocks was 18.5%. Basically, if the deal between Petrobras and the government went through as described, a significant portion of any third-party crude drilled in the pre-salt would go straight to Petrobras to sell.


    All those restrictions may have seemed particularly onerous to Exxon because it has hit its own South American oil bonanza in next-door Guyana. An Exxon-led consortium (that includes CNOOC and Hess) picked up an offshore block in Guyana in 2008. Thanks to a lack of significant petroleum finds in the country up to that point, ExxonMobil was able to acquire the block on favorable terms.

    THE RISK PAID OFF. That 6.6 million-acre Stabroek block has proven to hold massive petroleum reserves: More than 6 billion barrels of oil equivalents have been discovered there to date. In September, Exxon announced its 14th discovery on the block. It has committed $6 billion to develop the block, which is one of the largest oil discoveries of the past decade.

    That is not to say that an energy company can’t develop more than one deep-water oil field at the same time, even on the same continent. But with Exxon devoting so many offshore resources to developing its Guyana project — on comparatively favorable terms — Brazil’s onerous requirements probably looked a lot less appealing.


    Brazil will likely attempt to auction the two remaining pre-salt blocks again next year, offering more favorable terms. But there’s no guarantee they will receive any bids then, either. Adriano Bastos, the head of BP’s Brazil operations, said in an interview that he believes most companies will continue to sit out the pre-salt auctions, even if they are offered on more attractive terms, because of a glut of development opportunities across the globe.

    In the meantime, Petrobras loses out on the perceived benefits of third-party investment. However, it did manage to secure additional pre-salt drilling rights for the minimum bid, so while it’s a missed opportunity, especially relative to expectations, it is not going to have a negative impact on the company’s current situation.

    ExxonMobil, on the other hand, has struggled with declining production in recent years. The company’s willingness to sit this one out should cheer investors, because it says that Exxon isn’t willing to pursue additional production at any price, and that it feels confident about its existing production decisions. That is a good sign for potential investors.

  • brandli62  On November 21, 2019 at 7:13 am

    Clyde, thanks for posting the story! It illustrates how much competition is out there with regard to potential oil fields. I am of the firm believe that Guyana was lucky in several ways. The oil was found in favourable time period with Venezuela preoccupied with its huge economic problems. With Exxon developing the oil fields, Venezuela will refrain from meddling with an US company. Exxon will have to adhere to US environmental standards. They cannot afford to mess up or cut corners. An oil spill would generate huge bad press in the US. Finally, the climate debate will force oil companies to be hesitant in developing new oil fields.

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