Did the Continental Drift Create an Oil Bonanza?

Tullow Oil bets huge fields are "mirrored" across the Atlantic

By Tara Patel

More than 90 million years ago, when the land mass of Pangaea began separating into the continents we now call South America and Africa, the earth may have produced a lucrative farewell gift: huge oil and gas deposits along both coastlines where they had previously been joined. Now, Angus McCoss, exploration director and chief geologist at Tullow Oil, which in 2007 discovered one of the biggest oil finds of recent years off the coast of West Africa, is betting more than $100 million that a similar bonanza awaits off South America's eastern shore.

To reach that hoped-for bounty, Tullow and partners Royal Dutch Shell (RDS.A) and Total (TOT) by the end of March will start drilling their first deepwater test well a hundred miles off French Guiana, a sliver of South American rainforest best known as a former penal colony. The prospect field, called Zaedyus, lies 21,000 feet below the ocean's surface.

McCoss, who spent most of his career at Shell, aims to repeat the success of Jubilee, Tullow's 120,000 barrel-a-day field off Ghana on the other side of the Atlantic Ocean. He's optimistic because of evidence that Zaedyus mirrors Jubilee's geology, formed in the Cretaceous period when the African and South American land masses began to separate. "Tullow has proven more than once they are capable of thinking outside the box," says Thierry Pilenko, chief executive officer of oil service provider Technip. The idea of twin basins on either side of the Atlantic is "compelling," he said.

A glance at a map shows how South America would once have fit snugly into Africa's Bight of Benin. Zaedyus is the first well to test the "Atlantic mirror" theory and the payoff could be huge. Computer models estimate the field may hold 700 million barrels in gross reserves, valued at more than $70 billion at today's oil prices. "Zaedyus is the most exciting well of the year, as bold as it gets," says McCoss, who joined Tullow in 2006. "It's remarkable to try to open up a new basin in 2011. There aren't many opportunities left in the world."

The world's largest oil companies missed out on the Jubilee find. Tullow's partners in Ghana are Anadarko Petroleum (APC) and private-equity-backed Kosmos Energy. In French Guiana, however, Shell and Total, Europe's largest and third-biggest oil companies, have bought shares in Tullow's field and agreed to shoulder the majority of the $110 million cost of surveying the area and drilling the well.

McCoss says the chance of finding oil from the first test well to be drilled in French Guiana is probably about 15 percent. "It's exciting, but it's risky," said Yves-Louis Darricarrère, Total's head of exploration and production. "It's a good example of how we want to be more bold. I like to associate with those I admire."

Geologists believe that when the Atlantic Ocean started opening between South America and Africa, organic sediment resulted in hydrocarbon deposits known as the Late Cretaceous turbidite sands. They haven't been drilled to date because they are less visible than other types of deposits and drilling at such depths has only recently become viable.

"Integrated oil companies aren't as comfortable with the risks of drilling these wild cat types of wells as explorer companies [like Tullow] have been," says Oswald Clint, an analyst at Sanford C. Bernstein (AB). "The deep waters off French Guiana have never been explored."

French Guiana is an overseas region of France with a population of about 230,000. Starting in the 1850s, the country began deporting convicts to a penal colony known as Devil's Island off the coast, a practice that lasted about a century. Arianespace, the world's biggest commercial satellite launcher, launches satellites from Kourou, near the capital Cayenne. "We've been very encouraged by three-dimensional seismic we've shot in French Guiana," McCoss said, referring to studies of reserves done using sound waves. "We've found, as we had hoped, that it is in the heart of a major turbidite sand system."

Tullow is also a partner in the Jaguar exploratory field off nearby Guyana, scheduled for drilling later this year. Spain's Repsol YPF (REP) and Canada's CGX Energy are the other participants in that field. ExxonMobil (XOM) also holds offshore Guyanan acreage. In Suriname, a former Dutch colony that sits between Guyana and French Guiana, Murphy Oil (MUR), Repsol, Japan's Inpex, and Tullow hold acreage.

Oil companies are preparing to test a similar theory of reserves mirroring each other across the Atlantic by drilling into so-called pre-salt formations off Angola. They may resemble structures in Brazil that scientists say could hold 124 billion barrels of oil. Brazil's state-controlled Petrobras's Lula field, discovered in 2006 and formerly known as Tupi, was the biggest find in the Americas since Mexico's Cantarell in 1976. BP (BP), ExxonMobil, and Total are among companies that have been awarded rights to explore the Angolan pre-salt blocks.London-based Tullow, which isn't involved in Angola, plans to invest at least $500 million to drill about 40 exploration and appraisal wells this year.

The bottom line: A bet that a vast oil field lies off the coast of French Guiana may prove a geological theory and pay off big for Tullow Oil and its partners.