United wants to continue with oil project in Jamaica

United Oil and Gas Limited, the minority partner in the hunt for oil in commercial quantities offshore Jamaica, wants to continue to find a drilling partner despite the exit of Tullow Oil, its major partner in the deal, latest statements reveal.

“Markets will be aware that the licence operator, Tullow Oil plc, has written down the value of the Walton-Morant licence in their most recent preliminary results schedule,” stated United in its latest filings.

“United has indicated to the Jamaican authorities that it wishes to explore options for continuing to progress what United believes to be a transformative licence. Discussions have been initiated with the Government, and we will update the market in due course.”

The Ministry of Science, Energy and Technology assumed oversight of the island’s energy exploration activities. It follows the winding up of the Petroleum Corporation of Jamaica, PCJ, as part of a wider government rationalisation process.

The negotiations come as oil prices are rallying higher on a month-over-month basis, but still trailing on year-over-year basis. There is an oversupply of crude on the world market but also reduced demand, due to stay-at-home orders to fight the COVID-19 pandemic.

Last month, oil futures declined into negative territory but rebounded with new contracts. Crude oil prices were roughly at US$33 on Monday, compared to US$59 a year ago.

SEEKING A THIRD PARTNER

The current exploration licence held by the two companies is valid until the end of July 2020, according to PCJ documents. Tullow holds an 80 per cent interest in the Walton-Morant exploration project, while United holds 20 per cent. They were seeking a third equity partner to finance the drilling phase of the exploration, under what is referred to in industry terms as the ‘farming out’ of the project.

Latest statements by Tullow indicated that while it completed its analysis of three-dimensional (3D) surveys of the area, it will focus on other geographic regions instead of going forward with drilling.

“The data from the survey has been processed and Tullow has elected not to proceed into the next stage of the licence,” explained Tullow in updated statements on its website under ‘current activities’.

Earlier in the year, the company booked a US$36-million write-off of its key asset in Jamaica related to the Walton-Morant licence. At the time, it did not explicitly state that it would exit the project, but the overall restructuring in the wider group implied that it would scale back on discovery projects in favour of income-generating rigs.

Tullow also outlined that there has been oil or gas shows in 10 of the 11 onshore and offshore wells drilled in Jamaica to date.

“The offshore area to the south of the island has been identified as having good frontier exploration potential encompassing three geological provinces – the Pedro Bank carbonate platform and the Walton and ‘Southern’ sub-basins, which offer tertiary-aged clastic and carbonate reservoir targets in both structural and stratigraphic settings,” stated Tullow.

Tullow first acquired the licence in November 2014 for the Walton-Morant Basin which covers 32,065 square kilometres. The contract covered low-cost studies, reprocessing work, along with 2D and 3D seismic surveys in the basin. The team, which mapped positive prospects for oil over the years, was required to commit to drilling by July this year.

Tullow, in recent months, announced that it scaled back its exploration activities in various markets and appointed a new head of the division, Amalia Olivera-Riley, formerly of Repsol and ExxonMobil.

The oil company said its exploration portfolio was to be “balanced between proven basins, targeted frontier drilling and near-field opportunities”.

It comes amid US$1.8 billion of losses at Tullow last year, which exceeded revenue of US$1.7 billion. Tullow concluded its business review in February, which included slashing its staff by up to 35 per cent.

steven.jackson@gleanerjm.com