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Maka-1

02 December 2019 by jbchevrel

For context, Maka-1 is APA's first of three committed wells in Block 58 offshore Suriname. APA's Suriname drilling effort is just seven miles away from the Guyana maritime border, and they had been hoping to replicate Exxon Mobil Corp's success in finding oil in the area. Today APA 5y CDS widened by +27bp after a ‘thin’ update from the company, giving market participants little assurance that the exploratory well off the coast in Suriname will be profitable. This well was said to be ‘among the most anticipated in the world’ so the fact that APA released the first update without any color on the results of the first tests weren’t taken well by markets. Tests were carried out after the well reached 6.2km depth, and APA now plans to extend the project although with a new target depth of 6.9km. Some analysts had been negative on this Maka-1 well. According to Bloomberg, back in October, Morgan Stanley’s analyst had estimated that the probability that the well will show no commercial oil resource or low gas discovery was standing at 80%. At this juncture, most of the price action has occurred in the 5y part of the curve. Thus we see the CDS curve bear steepen, the short end is relatively resilient for the time being (1y, 2y wider +8). Elsewhere it was a reasonably risk-off session which saw trade tensions return in the limelight. In our space, CDS indices reacted more than single-names as a group.