Corporate Update

RNS Number : 8468H

Tower Resources PLC

19 March 2015

 

Tower Resources plc

Corporate Update

19 March 2015

Tower Resources plc (the "Company" or "Tower" (TRP.L, TRP LN)), the AIM-listed Africa-focussed oil and gas exploration company, provides the following corporate update with respect to activity across its portfolio and strategy.

Chairman's  Statement

We are taking steps to adjust to the current adverse oil sector market conditions. We believe that underlying market conditions will improve over the next couple of years, and sentiment will follow; the question is how best to position our company for this environment, not merely to manage through it but also to take advantage of the opportunities it creates.

Tower has a good portfolio of license interests in hand and in our pipeline, in several promising areas. Our strategy is as follows:

·     To maintain and even expand our license portfolio while minimising forward commitments and costs

·     To seek opportunities through asset or corporate transactions in order to optimize the portfolio and further reduce overall costs

·     To farm-out where appropriate some of the costs of those commitments that cannot be deferred

Our portfolio now has limited financial exposure with no drilling commitments. Our discretionary work programs have been cut and focused onto work related to farming out when conditions are favorable or on post-well analysis. Group costs are adjusting accordingly. Our current cash balance remains in excess of US$4 million even after paying in full for the Kenya well.

The Board fully recognises the current adverse sentiment towards the sector and to exploration in particular. We are fully aligned with other shareholders, most of us having personally made large cash investments in the Company. The pre-drill potential of the high-risk prospects drilled in Namibia in 2014 and Kenya in 2015 were validated in both cases by the entry into those blocks of large, well-respected and successful international companies with strong exploration track records, and offered enormous potential upside to shareholders. They were not successful, but we are reviewing the implications of these results for those blocks, where untested targets still remain. With the current devaluation of exploration assets in the market, we are all suffering substantial losses and discounts to asset values. However, we also know that exploration is a long-term activity and rarely lacks painful moments. We will continue to work our way through this downturn to achieve success.

We have been through cycles before, and we are confident that the sector sentiment will change in due course. This is a time of especially rapid change and volatility, which we think has, led to a short-term undervaluation of exploration assets. We are very alive to the opportunities for consolidation, as well as the attractiveness of building a wider low-cost, low-commitment, high-impact exploration portfolio at this time. Our team has already proved its deal-making abilities and I believe these will allow our company to deliver a better outcome for shareholders looking forward.

We set out below an update on our activities in advance of annual results, which we expect to publish in early May.

Jeremy Asher

Chairman

Portfolio Activity

Kenya Block-2B, Non-operated 15% interest

On 23 February, Tower announced the result of the Badada-1 well, onshore Block-2B, Kenya, which has now been plugged and abandoned following the completion of logging operations. The Operator, Lion Petroleum Inc. ("Lion" 30%), is in discussions with the Kenyan Ministry of Energy as how best to complete its evaluation of the remaining prospectivity of Block-2B.

Badada-1 was the first well to target Tertiary rather than Cretaceous age source and reservoirs within the Anza Basin. We were encouraged that the overall geological model was confirmed by the results of the well. There is a great deal of analysis to be performed on samples and data obtained.  The information obtained from Badada-1 should enable us to make better predictions of seal and source for any future drilling, thus reducing prospect specific risks.

The well took a total of 51 days to drill compared to the Operators initial estimate of 70 days and a small net saving on the budgeted US$25.8 million gross well cost (net US$3.8 million) is expected.    

Financial commitments are fully met and we do not anticipate significant additional expenditure this year. Any future drilling is likely to require a farm-out.

On 12 December 2014 Tower announced the granting of injunctive relief in relation to the injunction served on 17 November 2014 against Lion, its ultimate parent Taipan Resources Inc., Premier Oil plc, the County Government of Wajir, the Ministry of Energy and Petroleum, the Attorney General and the National Land Commission. This permitted the drilling of the Badada-1 well. A further hearing is expected shortly and the named parties believe the claims have no merit.

Zambia- Operated, 80% interest

Since becoming Operator of Blocks 40 and 41, as part of the acquisition of Rift Petroleum Limited ("Rift") in April 2014, the Company has successfully completed all of its Initial Period commitments in this frontier basin.         

During August 2014, Tower completed an extensive programme of geological fieldwork in Blocks 40 and 41 of the Zambezi basin, as part of the Initial Period work programme. The fieldwork comprised the evaluation of geophysical data, geochemical analysis and rock sampling to assess the potential for source rock generation and reservoir presence. The final results from this geological fieldwork will be submitted to the Zambian Ministry of Mines and Energy in the coming weeks. Initial results from this fieldwork are encouraging and indicate that the elements for a working petroleum system are present.

The three-year Second Period has been split into three one-year periods. These would progressively involve further field work, minor gravity data acquisition and interpretation and then potentially a 2D seismic programme. Tower will be looking for partners to fund contingent airborne surveys and seismic acquisition which are needed to define drilling locations in 2017/18.

Namibia PEL0010, Non-operated, 30% interest

Following resolution of our dispute with the operator, Repsol, regarding final drilling costs of Welwitchia-1/1A, we continue to evaluate the remaining potential in PEL0010. The Welwitschia-1/1A well completed in June 2014 failed to reach the deeper Albian Carbonate targets identified previously, which were assessed originally to have multi-billion barrel potential.  Our attention is now focussed on a reassessment of this potential in the light of the extra geophysical data obtained from the well during this reassessment period, and also an optimal location for testing these deeper targets.

We remain of the view that oil will be discovered in commercial quantities offshore Namibia and we note plans announced by other international companies for contingent drilling in late 2015/16/17. There has also been considerable seismic acquisition in recent months and ongoing in 2015. This remains a very underexplored and potentially exciting province.

South Africa, Non-operated 50% interests

In South Africa we remain positive about the future potential of the acreage we acquired last year through our acquisition of Rift Petroleum. Concerns about the regulatory environment have been lessened by the Government's decision to consult further with the industry. Our acreage is surrounded by the majors (Exxon, Total, Shell and Anadarko) and our commitments are low.

On the Algoa-Gamtoos Block, the processing and interpretation of 3D seismic data acquired in 2014 has continued, along with the synthesis of additional data, which will more clearly define prospectivity. The First Renewal Application to the Algoa-Gamtoos Exploration Right has been submitted to the Petroleum Authority of South Africa (PASA) and we expect this to be granted in H2 2015. With technical studies hopefully demonstrating improved prospectivity the Joint Venture hopes to be in a position to commit to drill in 2016/17. Tower's preferred option is to farm-out part of its interest in advance of that time.

Adjacent to the Algoa-Gamtoos Block 11B/12B of the Outeniqua basin, Total spudded the deep-water Brulpadda-1 exploration well in August 2014, in order to test the newly defined and highly rated deep-water play in the basin. However, due to technical issues with the rig the drilling of Brulpadda-1 was abandoned with a view to returning to drill in 2016. 

An application for the conversion of the SW Orange Basin TCP into a three year Exploration Right has been submitted to PASA. A formal response to the application is expected later in the year.  

Cameroon, 100% PSC application

Tower was selected as preferred bidder on the shallow-water Disonni block, offshore Cameroon and negotiations regarding the Production Sharing Contract (PSC) are now entering the final stages. The block is located in the under-explored Rio Del Rey Basin, which is an extension of the Niger Delta play systems, and offers Tower access to potentially lower risk prospectivity combined with material upside in deeper gas-condensate plays. On signing of the PSC our priority will be the acquisition of 3D seismic in H2 2015. A partner will be sought to share Tower's financial commitment and provide additional technical input.

Saharawi Arab Democratic Republic (SADR), Non-operated 50% interest

Through its subsidiary, Comet Petroleum Limited, Tower Resources holds a 50% interest in the three blocks totalling over 77,000km² spanning both the onshore and offshore in the Aaiun Basin. The offshore Guelta and Imlili blocks and the Bojador onshore block are operated by Hague and London Oil plc ("HALO" 50%).

Recent activity in the Aaiun Basin saw Kosmos Energy ("Kosmos" 55%) and partners (ONHYM 25%, Cairn Energy 20%) drill the CB-1 exploration well in the Morocco awarded offshore Cap Boujdour block.  The well encountered 14 metres of net gas and condensate pay in clastic reservoirs over a gross hydrocarbon bearing interval of approximately 500 metres. The discovery is non-commercial and the well was plugged and abandoned, but it is nevertheless encouraging.  It is reported that Kosmos will analyse the results and integrate with recently acquired 3D seismic data across the block with a potential to drill a second well.

The significance of this well result, located some 50 kms North of the Guelta Block and some 60 km west of the Imlili block, is that a working petroleum system has been established thus significantly de-risking plays along this part of the Atlantic margin. 

Ethiopia

Following an internal review of an application made by Rift Petroleum (Ethiopia) Limited, a wholly-owned subsidiary of Tower Resources, for Blocks AB3 and AB6, the Company has decided to withdraw the application and have so informed the Ethiopian Ministry Of Energy.

Equity Funding Facility ("EFF") Expires

On 26 March 2012 the Company announced that it had entered into a £20 million EFF with Darwin Strategic Limited ("Darwin") with the purpose of providing greater funding flexibility to Tower. The initial term of the EFF was for a period of 36 months and will expire on 23 March 2015. Tower has decided not to renew this facility and has informed Darwin accordingly. 

CEO comment

Graeme Thomson, CEO, commented "The aim of the Company has always been to create high impact opportunities which allow shareholders the opportunity to participate in material exploration upside. Tower is one of the few AIM listed companies to have generated, financed and then drilled two potentially high impact wells in the last year. Whilst drilling results to date have not delivered the success that we all would have hoped for, the high reward potential of frontier exploration goes hand-in-hand with its high risk nature. The Company will continue to create further attractive opportunities in accordance with the strategy outlined by the Chairman". 

Contacts

Tower Resources plc

Graeme Thomson (CEO)
Andrew Matharu (VP - Corporate Affairs)
[phone]

Peel Hunt LLP (Nominated Adviser and Joint Broker)

Richard Crichton/Charles Batten
[phone]

GMP Securities Europe LLP (Joint Broker)

Rob Collins/Emily Morris
[phone]

Vigo Communications

Chris McMahon/ Peter Reilly
[phone]

 

END

 

 

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