share prophets - buy

Busy Year Ahead for Tangiers Petroleum - Buy
BY GARY NEWMAN
Wednesday 29th January

LIKE so many other small oilers, there were high expectations when Tangiers Petroleum (TPET) first listed on AIM, but since then the share price has declined steadily. We could finally be about to see a change in fortunes though, with many technical indicators pointing to the current price of around 12p ~ 22.5c providing a base from which it can have a good bounce and a change in trend.

This also coincides with a time when there is plenty going on for the company which is now focused on Africa, having lost its Australian licences through lack of a work programme by its partner there.

In late 2013 the company, which is dual-listed on the ASX, announced a takeover of Jacka Resources with an all-share offer that is currently under consideration by the shareholders and closes on March 18.

If this goes ahead as planned it would significantly strengthen the company, and as well as its highly prospective exploration plays in Morocco, it would also give it lower risk appraisal drills in Tunisia and Nigeria, which would take place this year.

The OML113 licence in Nigeria, of which the company would hold a 5% net revenue interest – Afren recently bought 16.9% and it is operated by a local company – has already had gas, condensate and oil discoveries and has been flowed, with further appraisal to come. It is also next door to the OML310 licence, which hit the headlines with a big discovery last year for Afren and Lekoil.

Also through Jacka, it would be getting a 15% stake in the Bargou block in Tunisia, where a second sidetrack is due to be drilled by the middle of this year after the first one encountered problems when the operator attempted to flow test the reservoir from open fractures, achieving 1290 bpd before blockages forced it to abandon the well.

Morocco is a country which will attract a lot of interest in 2014 with numerous exploration drills scheduled to take place, including some from big names such as BP and Genel, and Tangiers has a 25% stake in the Tarfaya block.

Galp Energia is the operator and now owns 50%, having farmed into it in return for spending $40.5 million – comprising of a $7.5 million payment to the company to cover back costs, and the cost of drilling one exploration well.

As if that wasn’t enough, it will have a free carry on the Odewayne block in Somalia, with a 15% stake and Genel carrying out all the initial work, offering the potential for multi-billion barrel oil discoveries given the geological similarities with Yemen.

Jacka has its own farm out agreements, and between the two companies the balance sheet would look fairly strong with circa $20 million cash on the books.

In my view all of this puts the company in a strong position as long as the Jacka takeover goes through, which seems a formality, and provides a portfolio of diverse assets at differing stages and offering a range of risk, and some major partners providing expertise as well as funding.

This is one to buy and hold onto until things start to move as the share price won’t remain this low indefinitely, and whilst waiting for its own drills, the company could also benefit from any discoveries on other blocks in the region.

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