Shares in Tullow Oil jumped 13 per cent yesterday after the company said it had made a "significant" oil discovery in the Republic of Ghana, the first significant find in the country.
Analysts welcomed the announcement, with Davy raising both its valuation and share price target for the company after Tullow chief executive Aidan Heavey said the ultimate reserves are likely to be "materially in excess" of previous estimates.
The shares closed up 81 cents in Dublin at €6.82, while in London where they are more heavily traded, they were 51.25 pence ahead, at 460.25 pence.
Tullow finance director Tom Hickey said after the stock exchange announcement yesterday that the company had been targeting recoverable reserves of 250 million barrels from the West Cape Three Points block, but now hoped for 600 million.
In addition, he said the same oil-bearing structure extended into an adjacent exploration block, implying further upside to the reserve estimates. Tullow has a 22.9 per cent stake in the West Cape Three Points block and almost 50 per cent in the neighbouring site. The other partners are US groups Kosmos and Anadarko Petroleum and the Ghana National Petroleum Corporation.
In a note to investors, Davy said that taken together, Tullow's share in the oil-bearing structure was about 30 per cent, suggesting reserves of about 100 million barrels. As a result, the broker said that a discovery of this proportion is worth 66 pence a share to Tullow, compared with a pre-drill risked valuation of 9.5 pence.
Davy also raised its net asset value for the group to 441 pence and its share price target now stands at 500 pence. Elsewhere several US and UK brokerages, including Jefferies and KBC Peel Hunt, also upped their targets for the group.
Tullow has made no secret of its aspirations for Africa, though Ghana was not top of the agenda for this year.
At its agm last month, chairman Pat Plunkett said the group would this year focus on "important high-impact wells" in Uganda and Namibia.
Mr Hickey said yesterday the reason Tullow had not highlighted its activities in Ghana was that the company had plans to drill only one "high-risk" well in the country.
He said the findings had come in well ahead of the group's expectations and that the project was already a commercial prospect despite the initial drilling phase not yet being complete.
Tullow now plans to continue drilling the well, known as Mahogany-1, to a depth of 4,200 metres. It will then be suspended pending further evaluation and tested at a later date as part of the appraisal programme.
In the meantime Tullow plans to continue its focus on Uganda and Namibia and will only return to Ghana next year once it has fully analysed all the data received from the well.
Mr Hickey said that even given the strength of the find in Ghana, commercial production was unlikely to be on stream in under four to five years.
