Africa is elephant country—and not just for tourists.
Oil companies see it as the last onshore Big Game area—where virgin reservoirs still exist, and wells can be tens of thousands of barrels a day.
And right now, Taipan Resources (TPN-TSXv; TAIPF-PINK)is as close as anybody to finding the next one. They’re about to drill one of the most closely watched wells in Africa—the Pearl 1 well in eastern Kenya.
And they’ve done everything right so far. In fact, they are a textbook for companies looking to get business done in Africa and set up shareholders for a Big Win.
Early on, they bought a huge chunk of land early in the play
They hired a CEO with great experience, who now lives in Kenya
They hired the most successful exploration geologist in all of East Africa
They partnered with Big Oil to get a free ride on the well
And they did it all by issuing less than 100 million shares
That is leverage. When Africa Oil hit its first discovery well—Ngamia—it had almost three times the amount of shares as Taipan.
And the Size of The Prize just got bigger—a lot bigger. Last Thursday, along with partner Premier Oil PLC, Taipan announced the addition of over a billion barrels to their asset’s resource threshold. That’s billion, with a ‘b’.
Fully financed for 2014’s exploration program, Taipan is finally set to capitalize on the potential the market neglected to give it credit for. Now it’s time to roll up the sleeves and get to work. Seismic is already underway to determine an exact well location, and both CEO Max Birley and Exploration Manager Paul Logan are overseeing the operation.
“We’ve already begun the final phase of seismic ahead of drilling the well in our Block 2B and it’s going very well” says Joel Dumaresq, CFO and Director of Taipan Resources.
“At this stage, Premier is paying both their share and ours of the work required to prepare for drilling the well. We’re able to cash call them and get paid for the work we’re doing on Block 2B which is good. We’re very happy with the business development side.”
Both Birley and Logan are wildcatting experts by trade. Birley has a wildcat success record of over 50% and Logan’s is over 70%. In the highly oil prolific region of Kenya/East Africa, the finder’s rewards are enormous.
The latest Sproule NI 51-101 resource report trumpeted Block 2B’s Mean Gross Unrisked Prospective Resources at 1,593 MMBOE (up 388% from 410.4 MMBOE).
To give some perspective, the Sala-1 well shared by Africa Oil [AOI:CA] and Marathon had a best estimate of 400 million barrels. Another Africa Oil discovery, the Twiga South-1 (shared with Tullow), had a best estimate of 132 million barrels. – (Source WSJ: February 12, 2014).
The Pearl-1 prospect—set to be drilled this year on Block 2B— was estimated to have Mean Gross Unrisked Prospective Resources of 251 MMBOE.
Overall, the report identified 19 leads (up from 17). The top 6 leads account for almost a billion barrels alone, with an estimated 960 MMBOE.
STILL GROSSLY UNDERVALUED
The news of the extremely favourable resource adjustment did indeed give the Taipan share price a shot in the arm. But to many, the valuation is still a far cry from where the stock should be.
Typically the market values prospective resources at about $0.10 per barrel. Based upon the new Sproule report, that would suggest Taipan could presently be worth $150M or more based upon Block 2B alone….all for a stock that is presently trading at a $30M market cap!
It’s just a complete mismatch on where our market cap is versus perspective barrel type numbers that you would see out of Kenya right now.
The increase in expectations on Block 2B comes from incorporating approximately 400kms of seismic done last year not used in the original estimate.
When you add in the value of Taipan’s other exploration block (“Block 1”) you arrive at a Net Present Value approaching $300-$400 million…. beyond a ten-bagger difference compared to today’s market cap. Tap, tap, tap… Is this mic on?
“We have two big chances within the next 12 months to make a splash with drilling, and obviously we’re going to provision ourselves to get more chances,” says Dumaresq.
“We’ve always said that we believe if we could drill 4 to 5 wells the chances of having big success in one is very high. All we need is one to hit and we could have a $300 to $400 million company.”
WHY NO LOVE SO FAR?
In the search for answers as to why the stock hasn’t performed the way it deserves to, some may point to recent news coming from its neighbours.
Duster results coming out of Africa Oil’s Bahasi project definitely hurt the region’s momentum. It also didn’t do Taipan any favours.
However, both companies are working together to get this Tertiary Rift Basin up to speed. Success for one, equals success for the other.
“You have to remember that Bahasi was very low probability of success well,” says Taipan Director, Adam Zive. “It would’ve been a great positive for us if it had come through, but we were always pretty skeptical of that target.”
PEARL-1 AND THE PLAN GOING FORWARD
As seismic operations continue, Taipan and partner Premier are on schedule to complete their 2014 exploration program on time.
Thanks to a favourable farm-in deal that the two finalized last December, Taipan is being carried through the estimated $29.5 million drilling costs—All this while retaining a 45% stake.
The Big Game Hunt begins.
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