View from the top: Tangiers Petroleum interview

Tangiers Petroleum (TPET) made its debut on London's Alternative Investment Market (AIM) on Friday 3 February. Interactive Investor questioned chairman Mark Ceglinski about the prospects for his company in 2012.

Huge potential in Morocco

Five billion barrels (bbl) of oil - that is what a competent person's report (CPR) estimated that Tangier's core Moroccan asset, Tarfaya, could hold, with an unrisked best estimate of 867 million barrels.

The high side prospective resource potential of five billion barrels is based on just the recoverable resources in Tarfaya's first four prospects - La Dam, Assaka, Trident and Tarfaya Marin-A (TMA).

On the back of 2D seismic data, Assaka and TMA hold an unrisked best estimate of 144 million bbl and 191 million bbl respectively. Trident is Tangiers's largest prospect with an unrisked best estimate of 423 million bbl of oil. The best estimate for La Dam, based on 3D seismic data, is 110 million bbl.

In addition to these four prospects, Tangiers has also identified two other promising aspects - Zeus and little Zeus. The company believes the resource potential from these could rival that of the four prospects mentioned above.

Tangiers holds a 75% interest in Tarfaya. The remaining 25% interest is owned by the government of Morocco, which has given Tangiers very favourable terms regarding Tarfaya. Not only had the government granted no VAT on exploration and production expenditure, but also low loyalty rates and a 10-year corporate tax holiday from first production.

The permit on the asset, awarded in December 2009, lasts for eight years. The company expects to publish results from the acquisition and analysis of 2D and 3D data before the middle of this year, after which exploration drilling will commence. In the event of a commercial find, a 25-year exploration licence may be granted with an optional 10-year extension.

"A small discovery will be economical. A large oil discovery is always economical!" laughed chairman Mark Ceglinski.

While the government's interest is free through the initial exploration phase, it will contribute to development costs in the event of a discovery. It will receive royalties of 10% for oil and 5% for gas for discoveries in depths up to 200 metres. For greater depths, royalties fall to 7% and 3.5% respectively.

"Because our equity interest in the field is significant, we can afford to dilute our interest if and when we need to seek partners," reassured Ceglinski.

In the land down under...

Tangiers is also exploring in two areas in Australia: the Southern Bonaparte basin offshore north-west Australia and central Queensland in the north-east.

The licences in the Southern Bonaparte basin, in which Tangiers has a 90% working interest, include Nova, Super Nova, Milligans Fan, Turtle Barnett Oil Development and Messner Lead.

Broker Old Park Lane Capital estimates the resource could be worth 3.1 trillion cubic feet (tcf) net to Tangiers, with a net asset value of 37p a share.

"The Southern Bonaparte basin is superbly located, with Nova and Super Nova being large gas structures with multi tcf potential," confirmed Ceglinski. Probabilistic company estimates of unrisked gas in place range from 71 tcf to 148 tcf, with P50 of 107 tcf combined for the two prospects.

"Turtle is also interesting, flowing 38-degree API oil at a rate of up to 920 barrels of oil per day (bopd)," Ceglinski added, pointing out that permits were strategically located in relation to existing and proposed liquefied natural gas.

The 100%-owned Queensland asset is thought to have shale potential.

Looking ahead, Ceglinski said that 2012 was going to be "pretty busy".

"Morocco has just recently opened up. So there hasn't been a lot of exploration, which is very opportunistic for us," he stated. "In addition, we're always actively looking for other prospects."

Cap in hand?

At the end of January, the company undertook a AU$6.35 million (£4.33 million) private placement book build, which was a "vote of confidence" for the company.

This followed an AU$2 million investment by Range Resources (RRL) in September 2011. Range currently holds 5.7% of the company's shares.

High risk, high reward

"For investors with a high appetite to risk, we rate the stock a speculative buy," Donald Linderyd, analyst at HB Markets.

And there are risks involved. The stock has been fairly illiquid on its native Australian listing. It is also completely viable that Tangiers does not find any commercially viable oil reserves. Finally, shareholder returns, until the company starts to make profits, will be in the form of stock price appreciation.

"However, if the indications from the CPR prove to be accurate, the current valuation of Tangiers Petroleum could be a fraction of its true value," voiced Linderyd.

Old Park Lane Capital echoed this view. It had a target price of 115p for the stock.

Will investment in oil and gas continue to rise? George Godber of Matterley Asset Management shares his views on this and highlights regions that should show strength during the year in: Oil and gas investment outlook.