Tangiers Petroleum is a junior oil and gas explorer focused on Africa. It has a 25% stake in the Tarfaya licence, offshore Morocco, where the TAO-1 well is due to spud within a month. We believe that the main catalyst for the stock will be the TAO-1 exploration well. The farm-in to the Tarfaya licence by Galp was recently completed and we expect the TAO-1 well (in which Tangiers has a free-carried 25% interest up to a US$33m cap) to spud around mid- June. This well is targeting three large, stacked Jurassic reservoirs with a combined gross P50 prospective resource of some 750MMbbl of oil. According to operator Galp, the main prospect — Trident — has gross prospective resource of 450MMbbl of oil and a 21% chance of success. The Moroccan fiscal regime is extremely favourable, and we believe that the market does not fully understand just how benign it is. We estimate that for a 400MMbbl oil field development the NAV/bbl is USS20/bbl, considerably above the rule-of-thumb US$10/bbl valuation that seems to be put on oil discoveries by the market. Additionally, Tangiers’ main prospects are in 100m of water, meaning that in the case of a commercial discovery any development project would be far less costly than a similarly sized deepwater discovery. The combination of large prospect size, shallow water location and the Moroccan fiscal regime means that we estimate that the Trident prospect is worth US$156m (A¢65/share) risked and US$2,245m (A¢940/share) unrisked. We estimate that the current fair value of Tangiers’ shares is A$0.87 (48.2p), which is about 3x above its A$0.28 (14.8p) price on 5 June 2014. Tangiers Petroleum is a high-risk, speculative investment. In our ‘success’ scenario we estimate Tangiers’ shares could be worth A$3.31 (182p) by end-2014, while in our ‘failure’ scenario we estimate they could be worth just A$0.01 (0.7p) over the same timeframe. Figure 1: Tangiers Share Price (A$) Fair Value and Scenario Outcomes Source: Bloomberg, RFC Ambrian estimates Oil & Gas Tangiers Petroleum Speculative Buy Spice Up Your Life RFC Ambrian acts as Broker and Nomad to this company Stuart Amor +44 (0)20 3440 6826 [email protected]6 June 2014 Price (A$/p) 0.28/14.8 Target Price (A$/p) 0.87/48.2 Ticker TPT/TPET Market cap (A$m/£m) 65/34 Estimated cash (US$m) 20 Shares in issue Basic (m) 231 Fully diluted (m) 259 52-week High (A$) 0.33 Low (A$) 0.16 3m-avg daily vol (000) 2,808 3m-avg daily val (A$000) 655 Top shareholders (%) Ablett 3.3 Peninsula Inv 2.8 Australian Global Cap 2.2 Phantom WA 1.6 Bankasia Investments 1.4 Total 11.3 Management Michael Evans NEC David Wall MD Brent Villemarette ED Stephen Staley NED
Transcript
Tangiers Petroleum is a junior oil and gas explorer focused on Africa. It has a 25% stake in the Tarfaya licence, offshore Morocco, where the TAO-1 well is due to spud within a month.
We believe that the main catalyst for the stock will be the TAO-1 exploration well. The farm-in to the Tarfaya licence by Galp was recently completed and we expect the TAO-1 well (in which Tangiers has a free-carried 25% interest up to a US$33m cap) to spud around mid-June. This well is targeting three large, stacked Jurassic reservoirs with a combined gross P50 prospective resource of some 750MMbbl of oil. According to operator Galp, the main prospect — Trident — has gross prospective resource of 450MMbbl of oil and a 21% chance of success.
The Moroccan fiscal regime is extremely favourable, and we believe that the market does not fully understand just how benign it is. We estimate that for a 400MMbbl oil field development the NAV/bbl is USS20/bbl, considerably above the rule-of-thumb US$10/bbl valuation that seems to be put on oil discoveries by the market. Additionally, Tangiers’ main prospects are in 100m of water, meaning that in the case of a commercial discovery any development project would be far less costly than a similarly sized deepwater discovery. The combination of large prospect size, shallow water location and the Moroccan fiscal regime means that we estimate that the Trident prospect is worth US$156m (A¢65/share) risked and US$2,245m (A¢940/share) unrisked.
We estimate that the current fair value of Tangiers’ shares is A$0.87 (48.2p), which is about 3x above its A$0.28 (14.8p) price on 5 June 2014. Tangiers Petroleum is a high-risk, speculative investment. In our ‘success’ scenario we estimate Tangiers’ shares could be worth A$3.31 (182p) by end-2014, while in our ‘failure’ scenario we estimate they could be worth just A$0.01 (0.7p) over the same timeframe.
Figure 1: Tangiers Share Price (A$) Fair Value and Scenario Outcomes
Source: Bloomberg, RFC Ambrian estimates
Oil & Gas Tangiers Petroleum
Speculative Buy Spice Up Your Life
RFC Ambrian acts as Broker and Nomad to this company
Now that Tangiers Petroleum has a full Board again and as the TAO-1 exploration well (in which Tangiers has a 25% partially carried interest) is about to spud, we believe that investors will start to take notice of the company again. When they do, like us they are likely to notice its compelling valuation. At A$0.28/share, the stock is already up 75% from the A$0.16 issue price of its two capital raisings less than a month ago. We think that there is still further to go and are reinitiating with a SPECULATIVE BUY rating and a fair value of A$0.87/share (48p/share).
Tangiers Petroleum has not had an easy time of it this year. A February shareholder revolt over a proposed merger with Jacka Resources led to two Directors resigning (Managing Director Eve Howell and Max de Vietri) and the collapse of the deal. With only one Director left the shares had to be suspended until new ones were appointed. In April Michael Evans was appointed as Non-executive Chairman, David Wall was appointed as Managing Director and Dr Stephen Staley was appointed as a Non-executive Director. To compound these issues, the first three exploration wells drilled offshore Morocco this year all failed to find commercial hydrocarbons. In our view, the ‘hangover’ from the combination of these events has led to a significantly undervalued company.
We believe that the market has become too sceptical about the chance of Moroccan petroleum exploration success based on ‘near-ology’ rather than geologic science. We think the read across to the TAO-1 well from the three failed offshore Moroccan exploration wells drilled this year is more limited than the market believes. The two wells to the north (FD-1 and FA-1) were targeting Cretaceous sandstone plays rather than Tangiers’ proven (in the nearby Cap Juby discovery) Jurassic carbonate play. Recent seismic inversion studies by Galp suggest that the weak porosity found by the third well (JM-1) in the Middle Jurassic around the Cap Juby discovery does not extend to Tangiers’ primary Trident prospect in the Middle Jurassic. Tangiers’ management also believes that a Tertiary erosional event washed away much of the Cretaceous sediment above Cap Juby and allowed bacteria access to its Upper Jurassic carbonate reservoirs. The resulting biodegradation of the lighter fractions left the heavy oil that was originally tested by Esso in 1968. However, there is a thick Cretaceous section above Tangiers’ main prospects, making biodegradation from bacteria (and the resulting heavy oil) much less likely in its Upper Jurassic Assaka prospect.
Should the TAO-1 well prove a success, the Moroccan fiscal regime is one of the most favourable in the world. We believe that the equity market does not fully understand just how benign it is. We estimate that for a 400MMbbl oil field development, the NAV/bbl is USS20/bbl, well above the rule-of-thumb US$10/bbl valuation that seems to be put on most oil discoveries by the market. Additionally, Tangiers’ main prospects are in shallow water, meaning any development project would be far less costly than a similarly sized deepwater discovery.
We estimate that the current fair value of Tangiers’ shares is A$0.87 (48.2p), which is about 3x above its A$0.28 (14.8p) price on 5 June 2014. Tangiers Petroleum is a high-risk, speculative investment. In our ‘success’ scenario we estimate Tangiers’ shares could be worth A$3.31 (182p) by end-2014, while in our ‘failure’ scenario we estimate they could be worth just A$0.01 (0.7p) over the same timeframe. As Tangiers is responsible for 33% of the cost of the TAO-1 well above a US$33m cap, a significant cost overrun above the US$73m budgeted could potentially wipe out the US$20m of net cash that we estimate it currently has.
We are reinitiating with a SPECULATIVE BUY rating
‘Near-ology’ is no substitute for geological science
Tangiers’ main prospects are in shallow water and the Moroccan fiscal regime is one of the most favourable in the world
Valuation and risks
Tangiers Petroleum 6 June 2014 3
Management and Strategy
Following the resignation of two Directors in February this year, Tangiers’ management and Board has been substantially reshaped. Only Brent Villemarette remains from the previous Board. We believe that the new team has the right combination of skills to take the company forward. Furthermore, the new Managing Director, David Wall, has shown his confidence in the company’s prospects by committing to spend A$200,000 of his own money buying Tangiers’ shares (subject to shareholder approval on 12 June). The key Tangiers team members are shown below.
Michael Evans is the Non-executive Chairman. He is a Chartered Accountant and has extensive executive and Board level experience with publicly-listed companies in the natural resources sector spanning 30 years. He was the founding Executive Chairman of the ASX oil and gas explorer FAR Limited. Mr Evans is currently the Non-executive Chairman of the ASX-listed TNG Limited.
David Wall is Tangiers’ Managing Director. He spent five years in strategy and planning at Woodside Petroleum. More recently he has spent the last seven years in the financial services industry as a small-cap oil and gas equities analyst, specialising in African exploration companies.
Brent Villemarette is a reservoir engineer by training and is an Executive Director of Tangiers. He has over 30 years’ experience in the global oil and gas industry, primarily with Apache Corporation in the US and in Australia. He also serves as Chief Operating Officer for Transerv Energy, an ASX-listed oil and gas company.
Stephen Staley is a Non-executive Director of Tangiers. He has 30 years of energy management and technical experience, including spells with Conoco and BP. He was a founding Managing Director of upstream AIM start-ups Fastnet Oil & Gas and Independent Resources. He was also a Non-executive Director of Cove Energy.
Tangiers’ current weakness is that it has an interest in only one licence. This means that its fortunes are currently tied to the outcome of the TAO-1 exploration well. Management has recognised this and wants to diversify its political/geological exposure across other licences.
We believe that with the new management in place the company can start afresh in building a portfolio of African-focused licences. Management plans to pick up additional blocks in various African licence rounds. The company may also opportunistically acquire licences through farm-ins and corporate transactions. The aim is to acquire low entry cost assets where value can be added, before farming out to strong partners, resulting in the defrayment of its future capital requirements.
Michael Evans — Non-executive Chairman
David Wall — Managing Director
Brent Villemarette — Executive Director
Stephen Staley — Non-executive Director
Strategy
Tangiers Petroleum 6 June 2014 4
Tarfaya Offshore Block, Morocco
Figure 2: Tarfaya Offshore Block, Historic and TAO-1 Exploration Wells
Source: Company graphic
The Tarfaya Offshore Block comprises eight permits covering 11,282km². The water depth is generally less than 200m (and less than 100m over 70% of the block). There are four historic wells on the block (all had oil shows). Tangiers has a 25% interest in the Tarfaya licence (Galp 50%). Moroccan state company ONHYM holds the remaining 25% (free carried through exploration). In December 2012 Tangiers farmed out a 50% interest in the licence to Galp for US$7.5m back costs and carry on the first exploration well (up to a US$33m cap). The Moroccan Government has approved a six-month extension to the First Extension Period for the block. This means that the JV partners will have until February 2015 to evaluate the results of the TAO-1 well before deciding whether to enter the Second Extension Period (which would entail drilling two more wells and acquiring and processing 500km2 of 3D seismic).
Tangiers acquired the Tarfaya Offshore Block in December 2009, long before the region became an industry ‘hot spot’. Tangiers has added value to the licence by reprocessing old 2D seismic and by shooting and processing 680km2 of new 3D seismic. Four large Jurassic carbonate prospects were matured to drillable status on the 3D seismic. All are simple structural four-way dip closures. Interpretation of the seismic was made a lot easier by the good well control provided by the four wells drilled on the permit and 13 wells in the adjacent permits. Indeed, oil has been recovered from three wells on the nearby Cap Juby oil field (MO-2 tested 2,377bbl/d of heavy oil, MO-8 recovered 12 gallons of light oil and the Cap Juby-1 well recovered some five barrels of heavy oil).
A May 2011 independent resource assessment by Netherland, Sewell and Associates estimated that gross unrisked mean prospective resources at the four main prospects on the block are 867MMbbl of oil. Three of these prospects (Assaka, Trident and TMA) are stacked above each other in the Upper, Middle and Lower Jurassic carbonate reef reservoirs. The planned TAO-1 well will target all three reservoir intervals (although Tangiers has the option not to participate in the deepening of the well below the main Trident prospect down to the Lower Jurassic TMA prospect). The fourth prospect is to the south-west and is called La Dam.
Tangiers has a 25% interest in the Tarfaya Offshore Block, which covers some 11,282km²
Tangiers acquired the block long before the region became an industry ‘hot spot’
Gross unrisked mean prospective resources at the four main prospects on the block are 867MMbbl of oil
The Trident prospect has gross unrisked P50 prospective oil resources of 423MMbbl in Middle Jurassic carbonate reef reservoirs based on the 2011 CPR from Netherland, Sewell & Associates (NSAI). Galp (the operator) has estimated this target to have a geological chance of success (Pg) of 21%. The depth of this target is 3,000-3,600m. We estimate that the Trident prospect is worth US$2,245m (A¢940/share) unrisked and US$156m (A¢65/share) risked.
Figure 3: Seismic Inversion Results
Source: Company graphic
There have only been two well penetrations of the Middle Jurassic in the Tarfaya Block (MO-4 and Tan Tan-1), both towards the north of the block and interpreted to be off structure. However, Esso’s MO-8 well, 20km west of Tarfaya, made a light oil discovery in a Middle Jurassic carbonate. MO-8 produced a small amount of 38° API oil on test from this horizon. Cairn’s more recent 2014 JM-1 well encountered weak porosity across the Middle Jurassic interval at this location and the well was not tested. We believe the key risk for Trident is the carbonate reservoir quality (porosity/permeability), as it is for many carbonate prospects.
The Trident prospect has gross unrisked P50 prospective oil resources of 423MMbbl of oil; Galp has estimated this target to have a geological chance of success of 21%
Seismic inversion studies give a much better prognosis for porosity of Middle Jurassic carbonates at the TAO-1 well location than at Cap Juby
Tangiers Petroleum 6 June 2014 6
The challenge is to find regions of higher secondary porosity due to either fractures or karstification. Galp has carried out seismic inversion studies (see above) that its management believes show that the Middle Jurassic porosity at the JM-1 well location was always likely to be poor, but which gives a much better prognosis for porosity of Middle Jurassic carbonates at the TAO-1 well location.
Assaka Prospect
The Assaka prospect has gross unrisked P50 prospective oil resources of 144MMbbl in Upper Jurassic carbonate reef reservoirs based on the 2011 CPR from NSAI. Management believes the chance of geologic success (Pg) of this prospect is only slightly less than the main Trident prospect (ie, Pg slightly lower than 20%). We estimate that the Assaka prospect is worth US$764m (A¢320/share) unrisked and US$38m (A¢16/share) risked.
The Cap Juby discovery well, MO-2, produced 2,377bpd of 12° API heavy oil from an Upper Jurassic reservoir when tested by Esso in 1972. In March 2014 the Cairn JM-1 well confirmed that the Upper Jurassic objective also contained heavy oil (across a gross interval of 110m).
Tangiers’ management believes that the Assaka prospect has undergone a different burial history to that of Upper Jurassic carbonates at Cap Juby, making it less likely to contain heavy oil. The heavy oil at Cap Juby has been caused by bacterial biodegradation of initially lighter oil (the bacteria consume the lighter oil fractions, leaving the heavy ends behind). Significant Tertiary erosion of the Cretaceous sediments at Cap Juby means that the Upper Jurassic carbonates at this location were at much greater risk of the bacteria carrying water ingression than similar carbonates at the TAO-1 well location.
The TAO-1 well is positioned away from the erosional Tertiary unconformity, which can be clearly identified on seismic. There is a thick Cretaceous section above the Assaka prospect, making biodegradation from bacteria — and the resulting heavy oil — much less likely.
TMA Prospect
The TMA prospect has gross unrisked P50 prospective oil resources of 191MMbbl in Lower Jurassic carbonate reef reservoirs based on the 2011 CPR from NSAI. Management believes the chance of geologic success (Pg) of this prospect is only slightly less than the main Trident prospect (ie, Pg slightly lower than 20%). We consider the main risk to be the preservation of significant porosity at the target depth of more than 4,000m. Tangiers has the option not to participate in the deepening of the well below the main Trident prospect down to the Lower Jurassic TMA prospect. We estimate that the TMA prospect is worth US$1,014m (A¢420/share) unrisked and US$8m (A¢3/share) risked.
Le Dam Prospect and Other Potential Plays
To the south-west of the TAO-1 well location is the La Dam prospect, which has gross unrisked P50 prospective oil resources of 109MMbbl in stacked Upper, Middle and Lower Jurassic carbonate reef reservoirs based on the 2011 CPR from NSAI. We believe that it would make an excellent follow-on prospect in the event of success with the TAO-1 well.
The company also has a number of other plays that could be evaluated. These include Tertiary clastics, the Cretaceous Tan Tan formation and Liassic/Triassic clastics.
Figure 4: Offshore Morocco Stratigraphy
Source: Company graphic
Tangiers has the option not to participate in the deepening of the well to the Lower Jurassic TMA prospect
We believe that the La Dam prospect would make an excellent follow-on prospect in the event of success with the TAO-1 well
Tangiers Petroleum 6 June 2014 7
The TAO-1 Exploration Well
Tangiers and Galp plan to spud the TAO-1 exploration well in mid-June 2014. The joint venture will use the Ralph Coffman jack-up rig (see below), which is offshore Canary Islands now, undergoing some final checks before being towed to site. If all goes to plan, the well should take 15-20 days to reach the first target (the Assaka prospect) and 40-45 days to reach the main target (the Trident prospect).
Tangiers’ management has confirmed that the estimated dry hole cost for the drilling of TAO-1, on a trouble free basis, is US$73m. This seems relatively expensive for a ~50-day well in shallow water with a jack-up rig, but reflects the quality of the rig and the significant mob and demob costs to get the rig to and from site.
Tangiers will pay 33% of the cost of the TAO-1 well above US$33m. Thus, assuming the TAO-1 well cost is on budget, Tangiers will pay US$13.2m (0.33x{73-33}). On this basis, Tangiers is fully covered for the drilling by existing cash and receivables, including headroom for material cost overruns. Given the local weather conditions, shallow water depth and good well control in the region, we do not expect a significant cost overrun.
Figure 5: Ralph Coffman Jack-up Rig
Source: Tangiers Petroleum
Moroccan Fiscal Regime
The Moroccan petroleum fiscal regime is one of the best in the world. Royalty is 10% for oil in water depths <200m, 5% for gas (7% for oil and 3.5% for gas in deeper water). Corporation tax is charged at 30% of taxable income (determined after deduction of royalties, lease rentals, bonuses and production expenses). There is also a ten-year exemption from Corporate Tax from the date of commencement of regular production. Bonuses and land rentals are not material for medium-to-large developments. We estimate that for a 400MMbbl oil field development in shallow water the NAV/bbl is USS21.23/bbl.
Tangiers Petroleum 6 June 2014 8
Third-party Moroccan Offshore Exploration
There have been three exploration wells drilled offshore Morocco this year. Cairn’s FD-1 well in the Foum Draa Block was targeting sandstone reservoirs in an Upper Jurassic/Lower Cretaceous deepwater turbidite slope fan and channel complex. It had gas shows but failed to find significant sands at the base of the Cretaceous/Top Jurassic. Kosmos’ FA-1 well in the Foum Assaka Block was also targeting a Cretaceous deepwater fan. However, inaccurate assumed seismic velocities used in the pre-stack depth migration of the 3D seismic data meant that the well was drilled to close to a salt diaper and only encountered oil and gas shows in distal feather edge sands.
Cairn’s second exploration well, the JM-1 well, was drilled to evaluate Upper Jurassic and Middle Jurassic objectives in the Juby Maritime licence. In the Upper Jurassic section the well confirmed the presence of heavy oil over a gross interval of 110m as originally tested in the 1968 MO-2 well, some 2km from the JM-1 well. The Middle Jurassic objective was encountered with limited primary porosity.
Genel Energy is targeting two exploration wells, one each in its Sidi Moussa and Mir Left licences, in 2H14. Freeport-McMoRan Oil & Gas (which acquired Plains Exploration last year) plans to drill the Toubkal prospect in the Mazagan Permit in January 2015.
Figure 6: Moroccan Offshore Permits
Source: Chariot Oil & Gas
Recent exploration wells offshore Morocco
Future exploration wells offshore Morocco
Tangiers Petroleum 6 June 2014 9
Cash Position
Tangiers had A$3.5m at the end of March 2014. Subsequent to the end of March the closing of the Galp farm-in meant that Tangiers has got its US$3.0m Moroccan guarantee returned and the company is about to receive US$7.5m in back costs from Galp. Two secondary placements in May raised A$9m (a net US$7m after fees). Thus, we estimate that Tangiers’ net cash is currently US$20m.
Risks
Make no mistake, an investment in Tangiers Petroleum is high-risk. We believe that the value of the stock in 2-3 months’ time will be almost entirely dependent on the outcome of the TAO-1 well. Should the TAO-1 exploration well find >400MMbbl of light oil in the main Trident prospect we think that the stock could be worth A$3.31/share. However, if the TAO-1 exploration well is a dry hole the stock could fall to just A¢1.
Junior exploration and production companies like Tangiers are, by their nature, high-risk. They face many areas of common risk, including commodity prices, geological, operational, financial, regulatory, legal, political and security. The main Tangiers-specific risks are outlined below.
The TAO-1 well is budgeted to cost US$73m and take around 50 days to drill. Given the local weather conditions, shallow water depth and good well control in the region, we do not expect a significant cost overrun. However, it is still possible that unforeseen drilling problems or issues with the Blowout Preventer (BOP) could cause a delay and a cost overrun. By the terms of the farm-out to Galp, Tangiers is on the hook for 33% of costs over and above the US$33m cap. For example, if the well ended up costing US$90m, Tangiers would have to stump up US$19m, or pretty much all of our estimate of its current cash. Conversely, if the well comes in under budget and ended up costing US$60m, Tangiers would only have to pay an additional US$6m, leaving it with US$14m in cash.
For a junior oil and gas company Tangiers is currently relatively well funded, with cash of some US$20m after two recent small funding rounds. While this could cover several years of General & Administrative expenses, if the TAO-1 well comes in on budget (US$73m) we estimate that Tangiers will only have US$7m in cash after the well.
Morocco has one of the best fiscal regimes in the world. We estimate that for a 400MMbbl shallow water oil field development the NAV/bbl is USS20/bbl. Should Galp and other operators make several large oil discoveries over the coming years, we believe there would be a lot of pressure on the government to change the fiscal terms. In the short term we believe that the fiscal regime is unlikely to change as the government remains keen to encourage more petroleum exploration.
We estimate that Tangiers’ net cash is currently US$20m
Tangiers Petroleum is a highly speculative investment
Operational and technical risks
Funding risks
Fiscal risks
Tangiers Petroleum 6 June 2014 10
Valuation
We estimate that the current fair value of Tangiers’ share price is A$0.87 (48.2p), which is about 3x above its A$0.28 (14.8p) price on 5 June 2014. In our ‘success’ scenario we estimate that Tangiers’ shares could be worth A$3.31 (182p) by end-2014, while in our ‘failure’ scenario we estimate they could be worth just A$0.01 (0.7p) over the same timeframe. We estimate that Tangiers is trading on an EV/net risked P50 prospective resource multiple of just US$1.35/boe.
In our success scenario we are still assuming just a 33% chance of development of the main Trident prospect after technical success (discovering a 400MMbbl light oil field). This reflects the chance that the field is not commercially developed after appraisal (this could be due to variable/low porosity and/or permeability within the carbonate reservoir). Thus, there would still be room for a further 3x appreciation of the stock should the Trident prospect move through appraisal and into full development.
We outline the key assumptions behind our fair value estimates below.
Key Fair Value Assumptions
For our Current Fair Value Estimate
We have assumed that the TAO-1 well is drilled targeting the stacked Jurassic carbonate Assaka, Trident and TMA prospects.
We assume that the geologic chance of success (Pg) of the main Trident prospect is 21% based on Galp’s estimate. We have assumed a Pg of just 15% for both the Assaka and TMA prospects.
We also assume that the chance of development (Pd) of the main Trident prospect and the secondary Assaka prospect are both just 33%, reflecting the risk that if a discovery is made that it is not taken to commercial development. We have assumed a significantly lower Pd of 5% for the TMA prospect.
We have also estimated the option value of the La Dam prospect.
Our valuation assumes the TAO-1 well is drilled on budget (US$73m) and that G&A for the rest of 2014 is A$3.6m.
We use a flat real US$90/bbl Brent price and a real 7.5% (equivalent to a nominal 10% discount rate) in our model. The key attributes of our standardised model resource development are given in Table 2 below. Other key assumptions can be seen in Table 3.
Table 2: Tangiers’ Resource Development Model Attributes
Resources (MMboe)
NPV (US$m)
NPV (US$/boe)
IRR (%)
Gov’t take (%)
Morocco oil 401 8,504 21.23 60 14
Source: RFC Ambrian estimates
Tangiers Petroleum 6 June 2014 11
For our ‘Success’ Scenario Value Estimate
All assumptions are the same as above except:
We assume that an oil discovery is made in the Trident prospect (although not in the Assaka and TMA prospects, which could potentially give further upside). This de-risks the La Dam prospect (Pg is raised from 10% to 20%). We also raise our Pd from 5% to 33% for this prospect.
For our ‘Failure’ Scenario Value Estimate
All assumptions are the same as current fair value except:
We assume that the TAO-1 well is a dry hole. We assume no value for Tangiers’ Offshore Tarfaya licence in this scenario.
We also make no value adjustment for options as they are unlikely to be exercised in this scenario.
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