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BIG PICTURE - Madagascar Oil making headway at Tsimiroro

Madagascar Oil reinforced its management team in January by naming Robert Estill as chief executive. Attention is now turning to the imminent approval of a crucial development plan at the Tsimiroro Field.
BIG PICTURE - Madagascar Oil making headway at Tsimiroro

Madagascar Oil’s Robert Estill has a history of making light work of heavy oil.

The Texan spent 18 years in senior roles at Texaco, followed by a decade managing operations for Marathon Oil.

During his 30-year career he has supervised two major steam flood operations: Kern River in California and Duri field in Indonesia.

The latter was a £3bn project which reached production of 300,000 barrels of oil per day under his watch.

Both sites drag dense crude out of the ground through thermal recovery methods.

They are also similar in size and type to Madagascar Oil’s Tsimiroro Field - which has contingent resources of 1.7bn barrels of oil. 

So it seemed like a perfect fit when Estill took charge of the firm in January. The timing was right too. 

After spending US$300mln in the past ten years, Madagascar Oil now has the largest onshore footprint of any explorer active on the East African island. 

But prior to Estill’s arrival, the company (LON:MOIL) had gone 18-months without a CEO. 

This, combined with lower oil prices, knocked investor confidence and shares have fallen 36% to 4.7p since the start of the year.

Yet the firm is now at an important and potentially very exciting point in its development having submitted a crucial field development plan for Tsimiroro to the Malagasy government in October of last year.

This plan now has a high chance of being approved within the next three months, according to Estill.

Acceptance will trigger the start of phase-one of Tsimiroro’s development in the second half of this year.

Subject to securing additional funding, MOIL plans to drill around 450 wells by 2018.

“Getting the Block 3104 Tsimiroro development plan approved has been the key focus since I joined the company,” Estill told Proactive Investors. 

“It’s important for the business, and, potentially, the future of oil and gas production in Madagascar.”

Despite the likes of Total and Tullow exploring the island, MOIL is the first company to submit an oilfield development plan in Madagascar.

Tsimiroro, south of the town of Morafenobe, is extremely remote - even by Madagascar’s standards.

An approval would bring more than just petro dollars into the country, as broker VSA highlighted recently.

“It will also bring construction of roads, pipelines and power generation,” said VSA oil & gas analyst Marc Anis-Hanna.

“So in addition to developing the Malagasy oil industry, this will significantly advance mining and agriculture, as well.”

The commercial potential is just as exciting as the economic and social benefits.  

A mixture of cyclic steam stimulation and steam flooding means potential recovery rates are impressive at 40%-60%.

“We’re targeting 6,000 to 10,000 barrels of oil per day by 2018,” said Estill.

Oil can be found at a very shallow depth of between 100 and 200 metres below ground at Tsimiroro, which can keep drilling costs low.

“A barrel of heavy oil usually costs between US$40-US$60 to produce, our costs are well inside that range,” he adds.

“Oil prices are under US$60 a barrel right now, but this is a long-term project, so if we can make money around the current prices, there’s plenty more to come when prices start to climb.”

Heavy oil is used in ships engines, meaning marine companies are the biggest buyers.

Stricter controls on sulphur emissions are forcing firms to look at other oil providers.

As a result, Estill says that Madagascar Oil’s low 0.3% sulphur content should prove popular with businesses around the globe.

Broker VSA has noted all the plus points and reckons Madagasgar Oil is seriously undervalued.

It has a target price of 35p. Shares currently trade at 4.7p giving the company a market value of £34mln.

“We think the stock is undervalued and emphasise that a holding in MOIL gives investors a stake in a long-term strategic and profitable project,” added VSA’s Anis-Hanna. 

Looking forward, he believes that it would be unusual for such a large project to be undertaken by a single E&P company, and expect that a partner of size will be brought in at some stage.

Estill is tight lipped when it comes to future tie-ups and is staying focused on the development plan.

He does, however, point to the additional value attached to the business.

Outside of Tsimiroro, the company has three other exploration sites on the island - 3105 Manambolo; 3106 Morondava; and 3107 Manandaza.

“There’s additional value attached to the business, which sometimes goes unnoticed,” he adds.

“We’re looking closely at these exploration sites and continue to develop our understanding of their additional value.”

Overall, the former Texaco man is delighted with the position Madagascar Oil finds itself in.

“We have great assets, long-term relationships and a stable political environment.

“Going forward, we want to deliver profitable development and grow shareholder value significantly.”


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