Tullow's shares soar 24% after discovery of hugeoil reserves off Ghana

More than £1 bn was added to the value of Tullow Oil yesterday after the exploration group announced a major find off the coast of Ghana.

The share price gushed to 935p, a rise of 183.5p over Friday's close. The 24 per cent gain is one of the biggest single-day price movements seen in a FTSE 100 company's share price without there being any M&A activity.

Related articles

• Goldman predicts crude prices will 'super-spike' to $200 per barrel
• Search the news archive for more stories

It came as the oil price surged to fresh highs, reaching $122 a barrel after breaching the $120 level in New York for the first time on Monday.

With the relationship between supply and demand for the fossil fuel increasingly tight, analysts said the value of the discovery could add millions more to the company's rapidly rising value in the future.

Detailing the find in a Stock Exchange announcement yesterday, Tullow said that its Mahogany-2 well, which is being drilled to assess the Jubilee field off the Ghanaian coast, had been expected to show a "gas cap" representing the outer limits of the field.

However, this did not prove to be the case and the results now suggest that the field is an 11km-long "strategic trap" of oil held in place by non-porous rock. That is good news for volume estimates, and Tullow now believes the well is 90 per cent certain to yield 600m barrels, with a 50 per cent likelihood of there being 1 billion barrels. However, there is a chance that it could generate as much as 1.8 billion barrels. The discovery represents more than Tullow's entire current production. The company expects to begin producing from the field in 2010.

In common with most oil fields, several companies are involved in the field, which is so big it spans two licences – West Cape Three Points, in which Tullow has a 22.9 per cent interest, and Tano, in which it has 49.5 per cent.

Mahogany-2 is the third test well that has been drilled at the Jubilee field, but a further three test wells will be opened during the rest of this year. Work on the first of them is expected to start in July.

Analysts believe that as a result of Mahogany-2's success, the company will be more aggressive in exploring the outer limits of the field than its previously announced plans.

The chief executive, Aiden Heavey, said: "The confirmation that Mahogany-2 is in communication with both Mahogany-1 and Hyedua-1 reinforces our interpretation that Jubilee is a major discovery and is likely to lead to a material upgrade of current resource estimates.

"We will continue our appraisal and development programme over the remainder of 2008, with the overall objective of achieving first production in 2010. This is one of the best discoveries for a long, long time."

Mr Heavey said that the discovery would have a major impact on Ghana as well as on his company. He said: "Ghana is very fortunate that this discovery has been made today rather than 30 years ago. The bulk of the revenues will go to the people. Ghana has used the experiences of past finds in other countries to put in place legislation and procedures to make sure that the country's people will benefit. In the past discoveries have not necessarily benefited the people in the countries where the oil has been found, but this is an opportunity to get it right. This has the potential to transform the country."

Ghana has taken advice from the British and Norwegian governments with this aim in mind.

Analysts scurried to upgrade their estimates in the wake of yesterday's announcement, although they noted that a fall in the oil price could hit the shares, which have been tracking the price of crude in recent months.

Evolution Securities said: "We are raising our core plus risked upside for Tullow from 780p to 1100p. Today's news adds 140p to our old fair value alone but we are also adding in the risked upside from a number of other prospects offshore Ghana announced at the full-year results. If Jubilee comes in at the upper end of expectations then there is scope for this target price to move to 1300p."

The momentum from the Jubilee field and the rising oil price pushed Tullow into the FTSE 100 last September, in which the company is now firmly established.

Analysts have also pointed out that in addition, the Taitai well – the first of a multi-well programme in the Butjaba region of Lake Albert, Uganda, is now drilling. However, its development will require the construction of a lengthy pipeline through East Africa, and Tullow needs a larger partner to develop the field for export.