Offshore Morocco is attracting some of the world's leading oil explorers to its under-explored waters and is shaping up to be oil's next big frontier play.
- Morocco is the next exploration hot spot
- Large licences with big prospects
- Farm-out deal imminent
- 10-bagger potential
- Does not have the cash for drilling
- Long time before drilling
Anadarko Petroleum, Kosmos Energy, Cairn Energy, Genel Energy and Repsol have all acquired offshore acreage, but oil and gas minnow Tangiers Petroleum (TPET) might just have the pick. It bought the 15,000 sq km Tarfaya permit - an area about one-third the size of the southern part of the UK's North Sea - in 2009 long before Morocco became a hot spot.
Cairn and Genel have farmed into licences next to Tarfaya in the past few months, confirming the oil industry's growing interest in the prospect and prompting investors' attention. The companies plan to spend $100m (£62m) on drilling in late 2013 and early 2014. Kosmos is also planning to drill multiple wells on its nearby licence in 2013-14.
All this is good news for Tangiers. The company has delineated big drill targets on its permit based on 2D and 3D seismic data, and has opened a data room to lure in a partner. Importantly, three of the biggest reservoir targets are vertically stacked so they could be tested with just one drill hole, saving a lot of exploration costs. Independent consultant Netherland, Sewell and Associates estimates that prospective resources of the three targets could be 758m barrels of oil.
But Tangiers also recently shot further 3D seismic data that refines the targets ahead of setting up a farm-out. Its bosses expect to have processed the data by now and hope to have a deal signed by the end of the year. The company also anticipates signing a farm-out agreement for its lower-priority offshore Australian licences around the same time.
TANGIERS PETROLEUM (TPET) | ||||
|---|---|---|---|---|
| ORD PRICE: | 30p | MARKET VALUE: | £40m | |
| TOUCH: | 29.5-30p | 12-MONTH HIGH: | 46p | LOW: 19p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 6.1p | NETCASH: | See text | |
| Year to 31 Dec | Turnover (A$m) | Pre-tax profit (A$m) | Earnings per share (A¢) | Dividend per share (A¢) |
|---|---|---|---|---|
| 2008 | 0.18 | -1.97 | -6.7 | nil |
| 2009 | 0.07 | -0.86 | -2.4 | nil |
| 2010 | 0.10 | -1.73 | -2.7 | nil |
| 2011 | 0.09 | -2.56 | -3.0 | nil |
| 2012* | 0.10 | -2.30 | -1.3 | nil |
| % change | +11 | - | - | - |
Normal market size: 7,000 Market makers: ? £1=A$1.53 *Peel Hunt forecasts | ||||
New executive chairwoman Eve Howell has helped the company raise A$5.8m (£3.8m) in private placements since arriving in September. With about $8m of cash on hand as of October, Tangiers has the resources for its current research, but not for drilling wells.
That said, it's still early days. There is the risk that Tangiers won't find a partner to cover its drilling costs or that a farm-out won't be completed on attractive terms. But those worries seem built into the share price. Broker RFC Ambrian thinks the Moroccan and Australian farm-outs have an even chance of being arranged, while it reckons the stock market assumes a one-in-five chance of success.
Moreover, while exploratory drilling is still far off, at least this gives investors a chance to buy the shares before any excitement builds.
