Shares in Tullow Oil plunged to a two-year low on Wednesday after the London-listed explorer warned that two significant discoveries in waters off Guyana contained heavy oil, prompting warnings that the projects would be difficult to commercialise.

The company’s shares fell 23 per cent to 159.3p — the lowest since September 2017 — by mid-morning after it announced the results of an analysis into the oil quality at the Jethro and Joe discoveries off the coast of the South American country. 

Oils recovered from both wells were heavy crudes with a high sulphur content, Tullow said. Such varieties are generally more expensive to extract and transport. Refiners prize light, sweet crudes and the heavy variety also tends to trade at a discount.

The FTSE 250 company said on Wednesday that it and its partners were assessing “the commercial viability of these discoveries” in light of the analysis.

Its partners include France’s Total, which has a 25 per cent stake in the Guyana discoveries, and Eco Atlantic, whose shares are listed in both the UK and Canada and which owns 15 per cent. The remaining 60 per cent is held by Tullow.

London-listed shares in Eco Atlantic were down 51 per cent at 65p by mid-morning, even though it sought to strike a more optimistic tone, saying the quality of the oils in Guyana were “not dissimilar” to similar heavy crudes produced commercially in other regions such as the North Sea and the Gulf of Mexico.

It said the partners had sought the advice of third-party consultants with expertise in the development of such oil varieties.

“The company remains optimistic in considering the development scenarios and as the project progresses will define further information on plans and timing,” Eco Atlantic added in a statement.

Analysts at JPMorgan Cazenove said in a note that the oil quality “risks the commerciality of both prospects despite excellent reservoir quality”.

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Al Stanton, analyst at RBC Capital Markets, said he expected investors to now be “increasingly cautious” on Tullow stock, which had received a significant boost in August when the first Guyana discovery had been announced.

Tullow recently suffered another setback when a $900m deal to sell a sizeable stake in an undeveloped project in Uganda fell apart after a tax dispute with the government of the east African country.

The company also on Wednesday revised down for the third time its forecast for full-year production. It expects production to average out at 87,000 barrels of oil a day, down from previous revised guidance of 89,000-93,000 b/d, due to lower than expected output from Ghana, where it has two key projects, the Jubilee and Ten fields. 
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