Tangiers Petroleum is changing its name to reflect is change in strategic direction to Alaska from northern Africa.
This follows the failure of the TAO-1 well off the coast of Morocco, which it held a 25% interest.
Success could have been transformational for Tangiers, but managing director David Walls pointed out the well was always high risk and wasn’t the primary reason he came into the company.
“It was more like an option for us. Our skillset is starting companies,” he told Proactive Investors UK.
He and director Stephen Staley, one of the executives behind the success of Cove Energy, are keen to talk about the next project.
It takes the business from the warm Atlantic waters off the coast of northern Africa to an altogether more inhospitable environment: Alaska.
In all, it is snapping up almost 100 000 acres on the state’s North Slope.
The recent announcement from the company revealed the group had teamed up with a firm called Burgundy Xploration on Project Icewine.
The driving force behind Burgundy is a petroleum geologist called Paul Basinski.
Few outside the world of oil and gas will have heard of him, but to those who know the industry, he is something of a cult figure.
For Basinski was a key player in the discovery of the prolific Eagle Ford shale play in Texas and New Mexico.
His work straddled his time at Burlington Resources and then ConocoPhillips after the former’s US$36 billion takeover.
Not many of Basinski’s peers believed him when he said that careful analysis of the geology pointed to a vast unconventional oil and gas resource in the area.
After all this was Texas – a state that has been punctured more times that a pin cushion in the search for oil.
But his hunch proved correct and Conoco ended up with 320 000 acres in the sweet spot of the Eagle Ford that has made the firm a good deal of money since.
Basinski believes the untapped potential of Alaska’s North Slope, famed for the giant Prudhoe Bay discovery, lies with an unconventional play called the HZM, located around 11 000 ft below the surface.
However, Tangiers’ neighbour, Great Bear, is also chasing a higher-lying, potentially prolific conventional ‘turbiditic’ play.
Only with the advent of advanced 3D technology have explorers been able to discern potential game-changing conventional targets below the perma-frost.
With a 60% chance of success, hopes are high that Great Bear can produce with one of its three wells scheduled between January and May next year.
Given that one of the wells is only a mile-and-a-half from Tangiers’ project, success would have a positive knock-on impact on the value of Tangiers’ nearby 100 000 acres.
With US$1 million in treasury, the plan is to go out to raise around US$6 million to fund the full purchase of the land.
Depending on the success of Great Bear, it may or may not shoot 3D seismic to identify conventional targets before drilling a well that will test the conventional and unconventional plays late next year.
Combined, the seismic and initial well will be US$40 million. But given that Alaska runs a system of providing cash rebates on 85% on anything invested on exploration, the net outlay probably comes out at closer to US$12million, once you factor in the cost of finance.
And in fact, if the company decides not to shoot seismic – which would mean Great Bear hitting three successive dusters – then the net investment is likely to be US$5 million to US$6 million.
The majority of the upfront costs would be borne by a mezzanine finance facility secured against the rebate, Wall said.
The Alaskan incentives, designed to help oil firms replace the dwindling oil supplies from Prudhoe Bay, reveals why Tangiers took a shine to America’s most northerly state.
“There is nowhere in the world that does this on this scale,” said Wall.
“It is probably twice as expensive on the slope.
“But if you are only paying fifteen cents on the dollar it more than offsets the additional costs.
“It makes this area very attractive to a junior where there is limited access to capital and you need to allocate it efficiently.”
Because of Basinski’s reputation, there are already potential farminees out there.
Wall says there is a slim chance of finding a partner before the middle of next year, but a good chance of acquiring one later in 2015.
The success of Great Bear could be transformational for Tangiers – and this for just minimal investment.
For a conventional discovery on the door-step is likely to revalue significantly its land package. It is paying an all-in US$40 an acre, while deals in the immediate area point to property rising in value to US$1-2000 an acre if oil is found nearby.
The decision on whether to shoot seismic will be made once Great Bear has drilled its wells, while the first Tangiers well is planned for spud towards the end of 2015.
It is worth pointing out that while remote, Tangiers’ Alaskan acreage is right on the main highway and only 35 miles from a pump station. So it is in the sweet spot logistically – let’s hope the same can be said of the geology.
The first hole will be sunk before the end of 2015, before the Alaskan rebate system becomes a little less generous, and will assess definitively whether Basinski’s hunch is correct about the unconventional play.
“Paul has been working on this in secret for four years. He didn’t want to let the cat out of the bag until he had critical mass,” explained Wall.
“We have the sweet spot in the play and the strategic position on the road. They are not making any more [land] on the road.
“There are a lot of ways to kill a play quite early. This can’t be killed by any of the data we have, and there is a significant data set available because it is one of the most studied petroleum systems in the world.”
Adapted from press release by Joe Green