Shares in Tullow Oil dropped almost 6 per cent yesterday after the Irish exploration group said it had failed to find oil at three wells in Mauritania and Angola.
In a statement to the stock exchange, the company said the results from the drilling projects were disappointing and that the wells had been plugged and abandoned without any commercial discovery.
However, Tom Hickey, Tullow's finance director, said that, while from a commercial point of view the results were disappointing, they showed great potential for the company in the future. Even though the Faucon project in Mauritania will not produce sufficient oil for commercial use, it had shown that oil does exist in the region, he said.
He also said that the two wells drilled in Angola were Tullow's first foray into the country and that it is hoping to use them as an entry point to gaining more business in the region.
Both projects had been very high risk, with only a one in 10 chance of finding any oil, and the company had therefore expected they may not produce oil, he said.
"That's the thing with exploration companies," said Mr Hickey, "you are always going to drill dry wells. But if you don't try you will never find anything."
The shares fell 23 cent to €3.78 in Dublin, while in the UK, they held up slightly better, closing down a penny, at 267 pence (€3.94).
In a note to investors, Peter Hutton, an analyst at NCB, said that while many would be disappointed at yesterday's announcement, the overall result is in fact positive for the company as it proved the existence of a working petroleum system in the area.
Job Langbroek at Davy agreed, saying that the results should be seen in the context of an overall drilling programme.
"Tullow has a large exploration programme underway and the odds are that one of these high-risk, high-impact wells will work," he said in a note to investors.
Mr Hickey said yesterday's announcement would have no affect on the group's overall oil-producing capacity, which is expected to reach 70,000 barrels a day by the end of 2006. This compares with 60,000 barrels a day this year.
He also said the company plans to dig as many as 20 new wells in 2006, compared with about 10 so far this year. Close to half of this year's projects have been successful or encouraging, he said.
Tullow, which has interests in about 90 production and exploration licences in 16 different countries, will issue a full trading update at the end of January.
In the first half of the year, the group saw its profits soar by more than 400 per cent helped by the high oil and gas prices. Mr Hickey says he expects the prices to remain high for the next few years.
