Oil explorer Tower Resources (TRP:AIM) slumps 19.7% to 3.76p as it announces a heavily-discounted £19.3 million placing to fund drilling offshore Namibia and a £19 million paper-based acquisition of privately-owned Rift Petroleum.

It is fair to say today's announcement from the £105 million cap contains plenty for investors to chew over. The new shares are to be placed at 3.5p and the injection of cash means the company is fully funded to meet its share of the costs on the Welwitschia-1 well (located on the 0010 licence) while retaining its current equity position in the project at 30%. Drilling is expected to commence in 'late-April' targeting up to 500 million barrels of oil equivalent.

The Rift deal adds assets offshore South Africa and onshore Zambia. In addition a farm-in agreement on Block 2B onshore Kenya offers exposure to a 'play-opening' exploration well in partnership with London-listed Premier Oil (LON:PMO) and Canada's Taipan Resources (TPN:TSX-V) at the end of this year. To earn a 15% stake in the Kenyan asset, Tower is paying Taipan $4.5 million in cash, offering 9 million new shares and committing $1 million to a second well – contingent on success in the first.

Chief executive officer Graeme Thomson says: 'These transactions, combined with our existing assets in Namibia and Western Sahara, and our ongoing negotiations in Cameroon, Madagascar and elsewhere, will transform Tower into a true pan-African exploration company.'

Northland Capital puts its 'buy' recommendation under review and comments: 'A lot to digest in this update. Given the increase in Tower’s capitalisation the prospect of not farming out a share of 0010 is not too much of a concern. The company states that there remains strong interest to farm into 0010 but the timeline is tight.

'The acquisition of Rift and 2B add further exploration prospects that diversify some of the risk. Nonetheless we expect Tower’s fortunes to be substantially tied to the performance of Welwitschia-1. If Welwitschia-1 is successful then there remains significant upside potential, if not we would expect a major amount of equity value to be removed.'


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Issue Date: 09 Apr 2014