Tullow Oil and Africa Oil announced the first flow tests from their Kenyan discoveries this week, and the response was interesting — there was a quick and overwhelming “Hurray!” from the markets as both stocks were up 6-8% almost immediately in trading in Stockholm and London following the announcement … but by the time NY and Toronto trading opened it had gotten moderated a wee bit, and as we close in on the end of the week we’re looking at continuing strong gains for Tullow but a move back to almost flat for Africa Oil.

I think this is really just a case of investors trying to interpret what data and comments mean, and taking a moment to read the negatives (the PaiPai well has largely been a bust, though they may go back and test it) after getting excited about the positives (almost 3,000 barrels/day tested flow from Twiga and the testing rig moving on to their first drilling discovery, Ngamia, in short order).

What stands out to me is the extent to which Tullow, a $17 billion company, and Africa Oil, a $1.8 billion company, moved almost exactly the same based on these results from their joint venture — but then diverged. And the results, which I think are very good, are dramatically more material to the non-diversified Africa Oil than they are to the multinational Tullow. Kenya and Ethiopia are certainly important to Tullow, and if they can prove up the reservoirs that they believe to be there then it will probably help with several other areas where Tullow is pursuing similar formations, but the announcement of the “first commercial flow rates in Kenya” should still be a much, much bigger deal for Africa Oil, whose entire valuation is banked on the discovery in Kenya and the potential for their similar property in Ethiopia — if we’ve got commercial flow rates from one well, then that should de-risk the other properties to at least some degree.

How much? Well, I don’t know — it’s clearly still quite risky, it’s clearly still going to be years before there’s commercial oil production … but this does at least open the door that there can be commercial oil production from these wells, and that, along with the fact that Kenya is opening up more exploration blocks and investment is flowing into East Africa pretty rapidly, ...