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Tower Resources PLC: THE INVESTMENT CASE

Tower Resources shifts risk profile with Cameroon licence

The recent fundraising "paves the way for the company to make material progress across its asset base", according to the City broker Peel Hunt.
Tower Resources shifts risk profile with Cameroon licence
INVESTMENT OVERVIEW: TRP The Big Picture
Tower is headed for the shallower waters off Cameroon.

Following a successful £5.2mln (US$8mln) oversubscribed equity placing in July, AIM-listed explorer Tower Resources (LON:TRP) used some of the money to change its  profile away from solely frontier wildcat exploration.

In September Tower was awarded the shallow water production sharing contract (PSC) at Thali (formerly Dissoni), offshore Cameroon.

The Thali PSC covers an area of 119.2 square kilometres, with water depths ranging from eight to 48m in the prolific Rio del Rey basin, in the eastern part of the Niger Delta.

A clearly delighted Graeme Thomson, chief executive of Tower, said it was a great deal for Tower.

“Our entry into Cameroon marks a shift in our risk profile from frontier to proven basins and introduces an asset with existing discoveries into the Tower portfolio,” he explained. 

The Rio del Rey basin accounts for over 90% of Cameroon’s production with over one billion barrels of oil pumped so far.

Remaining reserves are estimated at 1.2bn barrels of oil equivalent (boe) at depths of less than 2,000 metres.

“Commitments under the PSC are for 100 square kilometres of 3D seismic over the first three years and minimum expenditure of US$13mln, after which there are two further renewal periods of two years at US$15mln apiece,” said Thomson.  

Seven million barrels of oil have already been discovered on the Thali Block, but are viewed as sub-commercial discoveries.

However, Tower sees potential to add incremental oil reserves and to develop deeper prospects.

Moreover, Tower said the existence of infrastructure in adjacent blocks meant a 20mln barrel oil field had the potential to be economically viable at current oil prices by which he meant between US$50 to US$60 a barrel. 

“The in-place infrastructure in the region means that development of any discoveries should be easier than it would be in a frontier environment,” added Thomson.

But in the excitement about Cameroon, Tower also made the point that it has not abandoned its frontier activities altogether; although it has relinquished its interest in a licence in Kenya.

Tower has been active in Namibia for some time. In 2014 the company was involved in the unsuccessful Welwitschia-1 well.

Many oil folk feel the southern African country has been a graveyard for AIM-quoted explorers.

However, Thomson believes the country is underexplored, remains highly prospective and industry interest in the area continues to be high.

The company now intends to extend its acreage position in Namibia and is planning to take over the operatorship of Block PEL10, offshore where the Welwitscha well was drilled.

In Zambia, additional field work will be carried out on Blocks 40 and 41, ahead of airborne gravity/magnetic surveys and potential 2D seismic.

In South Africa, in September, approval was received to enter into the two-year first renewal period on the offshore Algoa-Gamtoos licence (Tower holds 50%).  

As of the end of July Tower had US$9.8mln in the bank.

Commenting on the explorer following the equity raise broker Peel Hunt said: “Tower’s recent £5.2 mln (US$8mln) paves the way for the company to make material progress across its asset base.

“It is now funded for entry costs and early stage work on the Thali PSC as well as the initial stages of a new Namibia strategy and work commitments across of the rest of the portfolio.”

Peel Hunt continued: “The placing also saw M&G take on an 18% strategic stake in the company, indicative of strong support for the management’s strategy.”

In terms of valuation Peel Hunt says it has incorporated the impact of the placing on Tower’s balance sheet. It says the net impact means the broker can arrive at an estimate of a full net asset value (NAV) of 0.49 pence.

The broker reinstated its ‘buy’ recommendation and set its target price at 0.33 pence, “to reflect the timing and outcome of exploration drilling”. The price last night was 0.144 pence.

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Tower Resources PLC Timeline

Newswire
March 19 2015

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