IHS Global Insight Perspective | |
Significance | Tullow Oil is making its second attempt at drilling the Ngassa prospect in Uganda on the shore of Lake Albert. |
Implications | 500 million barrels of oil are being targeted by Tullow but more importantly an oil discovery will open up Lake Albert for offshore drilling, which could commence before the end of 2010. |
Outlook | Tullow has a number of important commercial decisions to make in Uganda over the coming years, including whether to farm down its 100% interest in Exploration Area 2. Large scale exports will need a pipeline, which is not expected until the middle of the next decade. |
Big Fish
Tullow Oil’s Ngassa-2 well in Uganda (Ngassa is a type of local fish) is perhaps the most important well to be drilled so far in the successful exploration campaign since the country first discovered oil in 2006. The offshore well is vital in a number of ways as its success will dictate how the company and how Uganda’s oil sector will proceed as the country aims to become an oil exporter in several years time.On a visit to the drill site for Ngassa-2 well in Uganda’s Exploration Area (EA) 2, IHS Global Insight was able to see the operating environment being prepared less than 50 yards from Lake Albert. There is considerable optimism within Tullow about the prospect of finding commercial reserves with the high-potential Ngassa-2 well and the drill manager for the well believes that "Ngassa-2 should put both Uganda and Tullow on the world map." Tullow is targeting 500-600 million barrels with this prospect. However, Ngassa-2 is a particularly difficult well to drill and they expect it will take 90 days, although Tullow has given itself 120 days to complete the task. They are drilling from the edge of the shore of Lake Albert.This is the second attempt at drilling the prospect; last February Tullow reported that the Ngassa-1 exploration well was suspended due to persistent borehole instability and so the company deemed it necessary to redrill from an alternative location. However, while drilling the shallow section, the Ngassa-1 well discovered six net metres of gas-bearing sands. Tullow stated that the thick claystone seals encountered provide good encouragement about the underlying oil prospectivity. Tullow has repositioned the Nabors 221 rig on the other side of the fault line and with the information gained from the first drilling attempt, along with further 3D seismic data, the company is ready to proceed with the Ngassa-2 well.
Lake Albert Exploration
Ngassa-2 is not only vital in terms of the further reserves it could add but because a successful discovery of hydrocarbons opens up Lake Albert for exploration, where a number of large prospects have already been mapped. Ian Cloke, Tullow’s exploration manager in Uganda told IHS Global Insight at last month’s East Africa Petroleum Conference in Mombasa, Kenya that Dietswell should complete Front End Engineering and Design (FEED) for an offshore drilling unit able to operate in 45 metres of water depth by the end of March, at which point a decision will be made on how to proceed with engineering options. Tullow awarded Dietswell a 3.2-million euro contract in the first half of 2008.Cloke spoke of the company’s optimism of being able to start drilling offshore Lake Albert in 2010. When IHS Global Insight questioned whether this schedule was too optimistic, Cloke reiterated that as long as it was possible to move the drilling unit down to the Lake Albert shore by June next year then exploration could take place before the end of 2010. However, due to Uganda’s landlocked location, importing equipment does take longer and is one of the many logistical challenges Tullow faces in exploring for oil in the East-African country. An offshore drilling facility including a barge and rig would be needed to drill the high-impact Crane and Pelican prospects.
Outlook and Implications
A successful Ngassa-2 well would likely see Tullow drill the planned Ngassa-3 well back-to-back. Very little work would be required to shift the drilling equipment less than 1 kilometre to a new site.Tullow is in the advantageous position of holding a 100% interest in EA2 and it seems certain that the company will decide to farm out a portion of the acreage. However, Tullow has an aggressive drilling campaign planned in EA2 throughout the rest of the year and was recently boosted by the discovery of oil-bearing sands at the Karuka-2 exploration well on the Vundu prospect in EA2 which was drilled and logged last month. The well was drilled by the light Ogec 750 rig, which will next spud the Nsoga prospect. IHS Global Insight has learnt that while farming out its interest in EA2 is a distinct possibility it is unlikely to happen this year, as Tullow continues to build the exploration area’s reserves figure. A farm-out arrangement is therefore more likely to happen in 2010. The drilling campaign will continue and Angus McCoss, exploration director said in a company statement; "For the remainder of 2009 our Butiaba programme will focus on the prolific Victoria Nile Delta play and look to replicate and extend the successful reservoir cascades encountered during our 2008 drilling programme."
Tullow’s next steps will be to start producing oil and the company is working closely with the Ugandan Government to achieve first production from the EA2 via an Early Production System (EPS). Paul McDade, the company’s chief operating officer has said he expects production to start at around 500 b/d, and then rise to around 2,000 b/d for the first three years. First oil is now expected in 2010. However, Uganda’s multi-billion barrel oil potential will not start exporting on a large scale until a pipeline is built, which would involve a multi-company export system. This is not expected until the middle of the next decade, when the companies and the government have a better understanding of the country’s full reserves. However, early speculation is the pipeline could have a capacity of 500,000 b/d.