Shell drinks Tullow and Anadarko’s Kool-Aid, buying into French Guyana’s oil potential

Tullow Oil

Source: Tullow Oil

Royal Dutch Shell is moving into French Guyana. On the surface, western Europe’s biggest energy group buying into an exploration block is nothing terribly interesting. But, as with oil itself, the answer lies not at the surface, but deep below it.

By buying a 33 per cent interest Tullow’s Guyane Maritime Permit, Shell is buying into 32,000 square kilometres of rock in waters 2,000-3,000 metres deep off the coast off French Guyana, a small French colony north of Brazil. Shell is also buying into the idea that those rocks are similar to the ones in Ghana, that house the giant Jubilee field.

Anadarko, the US independent oil company, and Tullow, listed in the UK, are both partners in the Jubilee field and the ambassadors of the theory that a pattern of rocks rich in oil stretches all along the west African coast, past the Cote D’Ivoire, Liberia and Sierra Leone and then heads out straight across the deep waters of the North Atlantic to the small French prefecture of Guiana on the northeast coast of Latin America.

Together the two companies have snapped up much of the right to explore the areas along the coasts (the industry still lacks the technology to stray too far out to sea). In October, the veracity of the companies’ west African oil coast theory got a big boost when Anadarko found oil at its Venus well in Sierra Leonean waters. Suddenly, the rest of its plots became far more valuable.

Here is some analysis and a geology lesson from Deutsche Bank:

Shell’s farm-in is supportive of Tullow’s belief that Ghana’s prospectivity extends into South America. A further farm-down is expected before year-end. Although French Guiana is separated from Ghana by the present-day Atlantic; 90 Mln years ago, when the sands that form Ghana’s reservoir targets were deposited, the Atlantic was closed; Ghana and French Guiana connected. Seismic studies have already identified multiple Jubilee-type targets in French Guiana. These will now be refined into drill ready prospects using a 3,000km2 3D seismic survey; currently being gathered. Although we do not expect a French Guiana well in FY-10, the partnership has a commitment to drill by early-11.

But the story is not all about below-ground risk, which is the industry’s term for the risk any company takes of drilling a well that comes up with nothing. The above ground, or political, risk is not to be sniffed at in places as troubled as Liberia, Sierra Leone and Cote D’Ivoire.

So French Guyana may be a long shot because it lies furthest from the Jubilee field. But it is attractive because it not only lacks a history of war and political instability. Its small population of about 200,000 could far more easily be lifted out of poverty by a significant oil find than say, the 20m people that live in Cote D’Ivoire, where oil wealth is more likely to enrich only a small group of corrupt politicians and their friends.

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