There are two main types of oil and gas exploration. Frontier or wild cat drilling means spudding a well in a location where the potential is untested and there are still potentially massive finds to be made. The alternative is to drill in a mature region close to proven discoveries where the finds may be smaller but the risks are also lower.
Historically AIM-quoted Tower Resources (TRP:AIM) has concentrated its efforts very much in the frontier but it is up 13.2% to 0.21p as it announces an oversubscribed placing to raise £5.2 million and thus secured entry into an asset in a proven basin offshore Cameroon.
The Thali block is located in the producing Rio Del Rey basin, a sub-set of the prolific Niger Delta.
With a production sharing contract (PSC) set to be signed with the Cameroon government imminently, the initial plan is for a seismic survey in early 2016 followed by drilling in 2017/18. The company notes that the downturn in the oil services sector allows it to ‘leverage lower seismic and drilling costs’ – a theme we discuss in more detail here – but admits it will need a partner to meet the costs of any work programme.
Despite failing to secure a commercial discovery from high profile drilling on the Welwitschia well offshore Namibia in June 2014 – a failure which eventually wiped nearly 90% off the company’s market valuation – some of the proceeds from the placing will be used to add acreage with a view to building economies of scale and lower risk exploration in the future.
As a result of the share issue M&G Investments becomes a new strategic investor in the company with an 18% holding based on an investment of around £2.3 million. Management also have some ‘skin in the game’ subscribing for around £900,000 of the placing.