UPDATE: Tullow Abandons Oil Well Off Guyana After Safety Concerns

--Tullow ends operations at Jaguar-1 well after "pressure design limits for safe operations prevented further drilling"

--Tullow said early drilling had yielded some signs of light oil

(Updates with additional background information, analyst comments in fourth and ninth paragraphs, and share price for CGX Energy in last paragraph.)

 
   By Alexis Flynn 
 

LONDON--U.K.-listed oil explorer Tullow Oil PLC (TLW.LN) said Monday it has decided to abandon a high-pressure oil well it was drilling off the coast of Guyana due to fears it could become unsafe.

The company said in a statement it had preemptively ended operations at the Jaguar-1 well, "after reaching a point in the well where the pressure design limits for safe operations prevented further drilling to the main objective."

Tullow's caution, coming just weeks after the French government briefly suspended drilling offshore nearby French Guiana due to environmental concerns, underlines the intense scrutiny on the safety of offshore drilling since the disastrous Deepwater Horizon blowout and oil spill in the U.S. in 2010.

It also underscores the risk and effort of developing a new offshore oil area. Oil companies are betting that the area off South America's northern coast could have oilfields similar to those discovered across the Atlantic in offshore West Africa. But the trouble with Jaguar-1 means that tapping the region is going to require "more difficult, more expensive drilling than was first expected," said Robert Gillon, an analyst with IHS Herold.

Despite not reaching its target depth, Tullow said early drilling had yielded some signs of light oil.

Tullow has spear-headed exploration off the largely ignored northeast coast of the South American continent. It made the first major discovery offshore French Guiana in September 2011, along with partners Royal Dutch Shell PLC (RDSB, RDSB.LN) and Total SA (TOT, FP.FR). It has licensed large areas for exploration offshore neighboring Suriname and Guyana.

The Jaguar-1 well is one of 35 prospects that Tullow is appraising world-wide. The firm has carved out a reputation for exploration success, making more notable oil discoveries than many of its larger, better-known peers in recent years. However, Tullow earlier this month highlighted the cost of drilling unsuccessful wells, announcing it would write down some $440 million of oil and gas discoveries that had proved to be less lucrative than initially hoped.

Analysts at Bernstein Research played down the significance of the well abandonment. "Jaguar was one of the largest prospects in Tullow's pipeline this year...All that has changed is the likely timing of the well, and we now know that the basin is oil generating," Bernstein said.

Anish Kapadia, an analyst with Tudor, Pickering, Holt & Co., said this well cost about $160 million, and given the pressure issues, the next well could cost north of $200 million "and may cause a rethink of whether it makes sense to drill."

Tullow shares were down 3.3% at 1,386 pence a share, in a flat market. CGX Energy Inc. (OYL.V), a Canadian firm that is a partner in the well and that owes a lot of the recent appreciation of its stock to its bet on offshore Guyana, saw its shares drop 40% to $0.26 Canadian dollar.

-James Herron and Angel Gonzalez contributed to this article.

Write to Alexis Flynn at [e-mail]