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Tangiers Petroleum Brings In The Portuguese And Chinese For High Impact Drilling Offshore Morocco And Australia



Tangiers Petroleum has been on the hunt for farm-in partners for its flagship projects in Morocco and Australia and on Monday announced it had bagged partners for both. The news failed to impress the markets, however, and shares in the AIM-quoted explorer dipped 16 per cent to 25 pence.


In Morocco, which is enjoying something of an industry buzz right now, Tangiers has landed Portugal's Galp Energia as a partner. Galp will take on 50 per cent of the Tarfaya Offshore block, leaving Tangiers and state oil company ONHYM with 25 per cent each. In return, Galp will spend US$41 million exploring the block, including a US$7.5 million payment to Tangiers to cover back costs.

The forward work programme will include a commitment exploration well on the 11,281 sq km block, where waters are typically less than 200 metres so can be accessed by a lower cost jack-up. The well will drill before mid-2014 and the Jurassic-aged Trident prospect is likely to be the primary target. This will perhaps surprise some investors as Tangiers, which is also listed on the ASX, had talked up the prospectivity of the Cretaceous potential of the block, which is thought to share similarities with the play-opening discoveries further south on Africa's Atlantic Margin.

Those prospects are not as firm as the Jurassic carbonate play, however, which had been worked up by a previous operator. Galp reckons the Trident prospect could hold gross prospective resources of 450 million barrels, with a 21 per cent chance of success (112 million barrels mean unrisked net to Tangiers post-farm-out). There is further resource upside potential in the Assaka, TMA and La Dam prospects.

As Tangiers has pointed out, there is much additional prospectivity on the block, including the giant Zeus prospect in the Top Jurassic, which stretches for 1,000 sq km (and there are six look alikes in this horizon) while the Cretaceous-aged Apollo, Hermes and Hercules prospects also look massive. Multiple leads in the Triassic, Cretaceous and Tertiary have yet to be fully evaluated as the recently acquired 3D seismic survey is still being worked up.

This is an important deal for Perth-headquartered Tangiers. Galp may not be the big name investors were hoping for but it is a seasoned player in the Atlantc Margins, with E&P interests in Brazil's pre-salt Santos Basin and offshore Angola. The deal also means Tangiers has a US$7.5 million payment coming its way to help fund activities and ensures it is fully carried through its Tarfaya commitments for the next two years.

Tangiers has also announced a Heads of Agreement to farm-out its blocks off the coasts of Western Australia and the Northern Territory. The agreement sees China's CWH Resources, in its first JV in Australia, spending A$35 million on exploration activities to earn a 70 per cent interest in the blocks, which lie in the southern Bonaparte Basin some 250 km southwest of the port of Darwin. This will leave Tangiers with a 27 per cent interest and junior party Ansbachall with three per cent. The CWH spend covers the remaining work commitments on the blocks, which includes 3D seismic acquisition and drilling.

The farm-out is rather less generous than Tangiers investors would have hoped – it had previously indicated holding on to about 45 per cent of the equity – especially as the company has talked of the world-class resource potential here. The block is not only home to a shallow oil discovery, that flowed 900 bpd on test, but also superstructures, such as the Milligans Fan Oil Play, where there could be 1.5 billion barrels of oil in place, or the 7 TCF Nova prospect (and below that Super Nova, which could be even bigger). Should these mouth-watering numbers ever be confirmed by the drillbit, then it's fair to say that ASX-quoted CWH will have got the steal of the century.

For Tangiers, however, this is part of its strategy to reduce its exposure to Australia in order to tighten its focus on Africa. Just last week the company announced that it had relinquished its onshore Queensland block in order to focus on Africa.

Analyst Barney Gray at Old Park Lane Capital said the Galp farm-out in Morocco was “great news”. “The company will now be carried fully throughout a two year work programme whilst retaining material exposure to exciting exploration upside,” said Gray, although he did reduce the target price to 106 pence from 150 pence to reflect the significant dilution following recent placings.

A further reduction will come as Gray weighs the impact of the Australia farm-out. This is a tough world for small oil companies, which are increasingly agreeing leaner terms in order to secure funding for their projects. These deals may not have provided the valuation benchmark investors were hoping for but they should ensure the AIM company retains material interests in fully funded high impact exploration campaigns over the next two years, which is more than many of its AIM peers can claim.