The Abu Roash Formation in Egypt has largely been untouched and this junior oiler is planning to use its state-of-the-art western technology to unlock the oil that lies underneath.
TAG Oil Ltd. (TSX/VEN—TAO)
The Badr Oil Field was discovered forty years ago by a joint venture between Bapetco and Shell Oil. Since that time, the Badr Oil (BED-1) field has produced both light oil and associated natural gas, through the primary development of several Abu Roash sandstone formations. Initially, the Abu Roash reservoir produced conventionally from some wells with high rates of oil but as expected with such tight reserves the production has been declining rapidly over the years. The site is currently producing approximately 3,500 barrels per day.
Prior to entering the oil venture in Egypt, TAG Oil conducted a detailed technical analysis of the geological and well production data of the undeveloped ARF (Abu Roash F) zone, and has determined that it has similar, if not, slightly better characteristics to the Eagle Ford shale in Texas. The company has determined that by applying current technology such as hydraulic fracture stimulation, long-reach horizontal well, and other novel oil recovery systems, there is a high probability that this will be a successful commercial venture; TAG Oil has already implemented such methodologies at its other reservoirs in Albania, Canada and in other parts of Egypt.
Initial planning studies reveal that the ARF zone ranges from 25-to-50 meters in thickness, across the 26,000-acre BED-1 concession, which has the potential to hold a significant amount of oil in place.
Research Capital analyst Bill Newman has compared ARF to the Eagle Ford analogy and states that if only one of the 26,000-acre BED-1 platforms proves economically viable there is a potential for 60,000 barrels of oil per acre; equal to nearly 500 million barrels of original oil in place. Assuming a five per cent recovery factor and valuing at $10 a barrel, the potential resource value will be $250 million.
The analyst is so optimistic about this venture that he has increased his target price to $1.35 per share, which is equivalent to a 0.5 multiple of his new risked NAV (net asset value) estimate. In return for significant production revenue from the ARF project, TAG will reimburse 100 per cent of the capital and operating costs.
With the infrastructure already developed for processing and transportation to the coast, TAG Oil is hoping to start the Phase 1 pilot developmental stage later this year, which will be followed by commercial production Phases 2 and 3.
TAG Oil is in a solid position financially to undertake this project as it has no debt, cash of $13.1 million, and a net positive working capital of $15.4 million. In addition, the company also holds a 2.5 percent gross overriding royalty on current and future production in New Zealand assets that were sold several years ago.
According to Mr. Newman, “Egypt adds a large resource upside. An investment in TAG is a bet on a management team with a strong international track record of building and monetizing successful oil and gas companies, and we expect the BED-1 assets will act as a stepping stone toward the acquisition of additional assets in Egypt, and in other countries located in the Middle East and North Africa region.”
He upgrades his recommendation of TAG Oil to “speculative buy” from “hold”.
TAG Oil is focused on oil and gas exploration and development in the Middle East and North Africa.
This is an edited version of an article that was originally published for subscribers in the October 14, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
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