There’s plenty of near-term upside news in the pipeline for oil and gas explorer Tangiers Petroleum Ltd (ASX:TPT/AIM:TPET) with the farm-out agreement with Galp Energia close to finalisation and preparations under way for the maiden exploration well, TAO-1, on its Tarfaya offshore block in Morocco.
The farm-out agreement will assign Galp, as the operator, 50 per cent of the Moroccan permits, the Moroccan government will retain 25 per cent and Tangiers a healthy 25 per cent as well as a free carry for the first well. The maiden well is targeting 758MMbbl (P50 prospective resource) with Galp planning to spud the well in the first half of 2014.
The Tarfaya block of eight permits is located in an area where a hydrocarbon system associated with Jurassic carbonates has already been proven by the Cap Juby discovery made by Esso in 1968. The area is still relatively unexplored with only one well drilled for every 10,000sq km compared with the global average of 80.
The Jurassic carbonate source in the Cap Juby discovery geologically matches the Panuke field in Canada, providing a direct link between the Moroccan offshore and its twin basin Nova Scotia Canada where material discoveries have been made.
A 10-well drilling program is expected to start in the area this year with some of the major companies involved including Galp, Cairn, Kosmos, Chevron, Plains and Genel. Four of these wells will target the carbonate play with the Galp/Tangiers well having the largest potential of the four.
Tangiers executive chairman Eve Howell said there was currently nowhere in the world that she knew of that was having the amount of exploration drilling activity at different geological levels, and with various operators, as offshore Morocco.
Tangiers’ well will be drilled in shallow waters (approximately 110m), which provides relatively cheap drilling and development costs compared to the majority of the other target areas.
Fosters Stockbroking recently reported that with an unrisked upside of greater than 50 times, it believed investors would not ignore the risk/reward proposition for too long and anticipated that in the lead up to drilling the share price would correct sharply.
In Australia, Tangiers has two exploration permits in the Bonaparte Basin, south-west of Darwin. These have been farmed out to CWH Resources which will fund $35 million on 3D seismic data acquisition and drilling. The permits contain 14 oil-prone leads in the Milligans Formation and the large Nova gas prospect (prospective resource of 3.5Tcf). Tangiers will retain a significant 27 per cent post farm-out.
In Australia, tenders for the acquisition of 500sq km of 3D seismic data closed on September 13 and a contract is expected to be awarded in the coming weeks.
Tangiers current cash position will be greatly improved with the imminent finalisation of the Moroccan farmout when it will receive more than US$10 million in cost reimbursements. A further A$7million is expected to come from outstanding 16c options which expire on October 31.
The Tangiers board has been very open about its plans to grow an African-based asset portfolio, based on shallow-water and onshore projects, and, according to Howell, is continuing to evaluate potential additions.
“Over the past six months, Tangiers has rigorously assessed many growth opportunities in Africa,” Howell said.
“Although some have been quite attractive, none have satisfied all the criteria the company has set for its next project. The board believes it is important to take the time needed to secure the right growth asset.”
TPT Price at posting:
26.0¢ Sentiment: LT Buy Disclosure: Held
