Tangiers Petroleum: Two company-making assets in one investment

Peter Landau knows a thing or two about the oil and gas sector as followers of his company, the AIM phenomenon Range Resources (ASX:RRS, LON:RRL), are very well aware.

So, when Range took a 5 per cent stake in little-known Aussie firm Tangiers Petroleum (ASX:TPT) earlier this month, investors on this side of the world sat up and took notice.

Range’s $2 million investment bought a 5.7 percent stake in Tangiers at 40 cents, which provided Landau and his team with an instant payback when it hit 88 cents earlier this month. Since then it is subsided to 60 cents.

However, if Tangiers fulfils a fraction of its potential, then the recent record valuation of the stock could be made to look ludicrously conservative. 

For Tangiers, which will list on AIM in the fourth quarter, has what it believes are two world-class assets.

The first is the Tarfaya oil area off the coast of Morocco, which has an un-risked prospective resource of 867 million barrels, with a high-end estimate of almost 5 billion barrels.

The other is a potentially mega gas prospect in Australia’s Southern Bonaparte Sea, some 250 kilometres south-west of Darwin.

Each has the potential to be a company maker, and farm-out deals to be unveiled by the year-end will reveal whether the oil and gas industry agrees.

The listing across in the UK gives Tangiers exposure to a market more au fait with African offshore oil, and of course access to the deeper pockets of the London institutions when it comes time to invest.

The immediate plan, however, is to find partners willing to carry out the initial drilling campaigns on the two projects as well as some 3D seismic work.

Morocco is one of the world’s few under-explored oil nations, though give it five more years and the country will be inundated by the industry’s great and good attracted by the very favourable fiscal regime. 

Companies such as Tangiers enjoy a 10-year tax holiday on each and every discovery they make, while the royalty on oil is 10 per cent.

“Morocco is a good place to do business,” says Tangiers chairman Mark Ceglinski.

“It has been untainted by the Jasmine Revolution, has a progressive king and a parliamentary democracy. They are eager for investment and have developed fiscal terms that are encouraging foreign investment.”

Tangiers owns 75 per cent of the Tarfaya Block, with the remainder held on a free carried basis by the Moroccan government. The company has eight permits covering a total 15,000 square kilometres.

An independent evaluation by Netherland, Sewell & Associates came up with the 867 million to 5 billion barrel recoverable resources resource estimated cited earlier.

It looked at four Lower-Middle Jurassic prospects in the block – La Dam, Assaka, TMA and Trident.

Meanwhile, interpretation of the latest 2D seismic data on Zeus and Little Zeus prospects suggest they are significantly larger than first thought. 

“Zeus and Little Zeus are big closures,” Ceglinski says. “Zeus on its own is 1,000 square kilometres plus – a very thick unit as well.

“We have done some preliminary internal volumetrics and it appears to be quite large large. 

“We have asked Netherland, Sewell review the prospects and we look forward to seeing their conclusions.

So far the company has identified four prospects in the upper and middle Jurassic and another eight in the top Jurassic intervals.

Early indications suggest there are “multiple leads” in the Lower Cretaceous, while the Tertiary and Triassic have yet to be evaluated. 

The Zeus prospects were found in the Upper Jurassic, which the same oil-bearing horizon drilled by Shell in the late 1960s for the Cap Juby Oilfield nearby. 

However it is only recently that interest in the area has taken off. Last year 12 wells were drilled, with eight successes, and in 2009 there were nine wells.

Tangiers won’t develop the block on its own. It will farm out a share of the asset in return for up to three wells at a cost of US$25 million each and US$10 million-worth of 3D seismic.

“We are opening the data room and we plan to farm it out imminently for three wells and 3D,” Ceglinski confirms.

“It would be fair to expect a two-for-one farm out, where we would retain half of all of this and get free carried through all the spend.”

In Australia, the company has discovered what it believes to be two huge gas finds – Nova and Super Nova - sitting below already existing oil fields.

The oil bearing parts are the Turtle and Barnett structures that have the potential to be near-term cash generators for the company and are part of a wider area covered by exploration permits WA-422-P and NT/P81.

Based on work carried out by Schumberger, Tangiers cites what it calls a “probabilistic estimate” of un-risked gas in place of 71 trillion cubic feet to 148 Tcf – which makes the pair potentially huge on anyone’s register. 

The geology points to a major find, as does the “nearology”. Nearby are the  Petrel, Tern and Blacktip gas fields. The latter has a direct pipeline to shore, which cuts straight through Tangiers licence area. 

“We have allowed several parties intothe data room while we were finalising our technical work,” Ceglinski reveals.

“We are about to open that more broadly and invite potential farm in partners to review the data. We’d like two wells and some 3D all completed next year.”

The cost of this is likely to be around US$100 million for anyone who farms in 

“We are looking to be carried on that,” the Tangiers chairman adds. 

“And we have 90pc of that project. If we farm out we would still have 45 per cent of something that could be rather large.”

The reason for Ceglinski’s visit to the UK was to ink in the details of the company’s AIM listing. The NOMAD, lawyers and IR consultants have all been chosen. The broker will be named soon. 

The only other decision is whether to raise cash as part of the junior  market float. With in excess of A$2 million in the bank the company has enough cash in to fund its near-term working capital requirements. 

After that the farm-out deals should rake in additional funds.Diluting the investors at these prices is seems unwarranted. 

However, a small free float in London may help initially with liquidity while also setting a valuation benchmark.

At the same time, Tangiers is keenly scanning the horizon for acquisitions while developing its current assets.

“We are looking at other projects in Australasia, Asia, Africa and North and South America,” says Ceglinski. 

“We’ll take a look at almost anything, even Puntland!,” he adds, referring to the formerly war ravaged part of Somalia where Landau’s Range Resources is invested. “Although, Peter’s a little braver than I am.”