Broker snap: Tullow a 'hold' after Ethiopian well disappointment, says Canaccord

9th Dec 2013 10:20

Canaccord Genuity has kept its 'hold' rating and 1,050p target price for Tullow Oil after the company's disappointing well update on Monday.The company said that the Tultule-1 wildcat well onshore Ethiopia, located in the South Omo block, would be "plugged and abandoned as a dry hole".Tultule-1 was targeting a reservoir section similar to the sands drilled in the nearby Sabisa-1 well where oil was found, but these sands were not penetrated, the company said. Nevertheless, gas shows confirmed the presence of a hydrocarbon source in the region."This is a disappointing well result from the point of view that it hasn't proved beyond doubt the commercial viability of the Omo basin; however, this is only the second well of the programme in this basin," said Canaccord in its research report.The broker explained that it had only attributed a value of 1p per share to Tultule on a risked basis (5p/share unranked) "so the target was relatively small"."The importance of the well was not so much in the value of the standalone target but was more about opening the next basin in the East African drilling campaign. Tullow has had a bounce over the last week and we expect a bit of weakness today."The broker said that the stock warrants a premium rating given the breadth and depth of its exploration programme and potential for additional success onshore East Africa. "However, we currently believe the risk/reward balance is more attractive elsewhere," it said.The stock was down 2.78% at 874.5p by 10:30.BC