Tullow’s latest Kenyan success could be the tip of the iceberg, says Morgan Stanley

Tullow Oil (LON:TLW) may have barely scratched the surface in Kenya, heavyweight broker Morgan Stanley said following more successful drilling in the country.

The FTSE 100 explorer revealed on Friday that it had inadvertently struck more oil at its Ngamia-1 well in Kenya.

The latest find showed oil and gas over a gross interval of 140 metres from a depth of 1,800 metres to 1,940 metres.

“This is an important, positive update, as without even having drilled the target reservoir, the well has already encountered oil/gas across sections multiple times the thickness of that seen throughout Uganda, its nearest analogous basin,” Morgan Stanley said.

And the broker doesn’t expect the good news to stop here, adding it “has likely only just entered the top of the target reservoir, in our opinion”.

The size of the discovery is difficult to ascertain without more detailed information and the broker expects a resource estimate in the near future.

“Given the net pay in the shallower horizons and scale of the structure/closure, everything to date suggests multi 100mb, far in excess of our 90mb upside case expectation.”

Morgan Stanley is confident the explorer can replicate the success it has already seen in Kenya, in addition to the regional technical understanding it has gained from Uganda.

The broker is urging investors to buy ahead of what is likely to be “a string of success, unlocking a new East African oil province,” the broker concluded.

Tullow had initially announced the Ngamia discovery back in March, while it revealed another 100-metre interval of light crude earlier this month.

The well will be drilled to a total depth of 2,700 metres and then logged and sampled, which will take a further three weeks to complete.

The find represents another triumph in the highly prospective region of East Africa, where interest from oil majors has intensified lately.

Anglo-Dutch giant Shell (LON:RDSB) has been hitting the headlines lately as its bidding war for Mozambique-focused Cove Energy (LON:COV) hots up.

Fellow big names Exxon (NYSE:XOM) and BG (LON:BG.) have also recently made moves into the area.

Smaller companies in Kenya include Simba Energy (CVE:SMB), which is currently evaluating its earlier stage exploration asset.

The junior explorer has already uncovered two potential targets for further exploration and a new competent person’s report (CPR) will provide expert insight on its acreage.

Shares in Tullow jumped on the back of the news and are still rising today, climbing 37 pence or nearly 3 per cent to 1,432 pence.