ProActive Investors Australia
LONGREACH OIL AND GAS LTD
www.longreachoilandgas.com/
Full Longreach Oil and Gas Ltd profile here
by Ian Lyall
The transformation from ambitious junior explorer to mid-cap with production and cashflow can often be a traumatic one.
Indeed many promising oil and gas companies fail well before making the leap.
Having top notch assets in a stellar location counts for a lot, but is no guarantee of success.
Without the cash to take these projects up the value chain you are spitting against a force ten gale.
Management with a track record for success also helps when trying to make the breakthrough to the big league.
Following its merger with APIC Petroleum Corporation, Morocco-focusedLongreach Oil & Gas (CVE:LOI) will have a tick in each of these boxes.
More than that it has the potential for near-term production from its Sidi Moktar licence area and is fully carried for two offshore wells.
The APIC deal, when it closes next month, will bring with it US$30 million in freshly garnered funds that will help catapult the business up the value chain.
The placing will also bring in some fairly well known cornerstone investors including Dundee and Pinetree Capital, together with existing Longreach institutional shareholders Blakeney and Sprott – investorswith financial staying power.
One notable addition to the boardroom will be Dennis Sharp, who comes in as executive chairman, with Longreach chief operating officer Andrew Benitz assuming the role of CEO of the enlarged group.
Sharp has a “tremendous reputation” in Canada, Benitz points out.
Indeed he has. He built up CS Resources, which he sold to Pan-Canadian Petroleum for $521 million in the late 90s. He was instrumental in setting the direction for UTS Energy Corp, which grew from a $30m minnow to a business bought for $1.5 billion by the acquisitive French giant Total.
“He is an expert in taking a single project, developing it and maximising the true value potential of the project,” Benitz says of Longreach’s new chairman.
“He got very enthusiastic about Morocco and in particular our operating licence for Sidi Moktar, which he saw as a million acres of land within a proven hydrocarbon basin with tremendous undrilled potential.
“I have known Dennis for four years and other members of the board have known him for up to 30 years. So there is a lot of familiarity between the two teams.”
“We didn’t want to be slaves to the market and drip fed financings that never quite got us enough, which is often the case with juniors, so to conclude this funding and be fully financed for a multi well programme in 2013 is a terrific result.”
The merger was agreed after a trip to Morocco in July, which allowed Sharp to see for himself the full potential of the prolific gas-producing SidiMoktar gas concession.
Longreach has a 50 per cent working interest in the area, which has already produced from the Jurassic, though the neighbouring Meskala field iscurrently producing from Triassic sandstones.
This and extensive 2D seismic coverage give the group huge cause for optimism. The main gas pipeline, which runs through Sidi Moktar, means a successful well can be quickly monetised.
The $30 million will fund two wells on SidiMoktar with the Koba and Kamar prospects providing the first drill opportunities.
The former will be drilled into the upper Triassic sandstone known as T9-10, and puncturing the top of the lower lying Triassic T6 sandstone.
This will allow the group to determine the drill programme for the Kamar prospect, which will target T6 sandstone at an up-dip location.
The first well is expected to be spudded “late first quarter, early second” of next year. The wells are expected to take 60 days each and have a dry hole cost estimate of $10 million.
However, before the drill rig gets going, Longreach will acquire more 2D seismic that will further de-risk Koba and Kamar and convert other promising leads into drillable prospects.
“We are hoping by this time next year we will be in cashflow. But it does depend on drill success,” says Benitz.
Tangiers Oil & Gas, Pura Vida and Fastnet Oil & Gas have created a buzz around potentially huge opportunities off the coast of Morocco.
Each is looking for a partner to fund the hugely expensive drill phase.
On the Foum Draa and Sidi Moussa licence areas it is now a very junior partner (with 2.5 per cent and 1.5 per cent respectively), but will be carried for two wells costing $110 million targeting a best case 2.3 billion barrels of oil.
“We got two carries on two offshore wells after farming out,” says Benitz.
“For us it has de-risked the offshore and allowed us to concentrate on the onshore.”
As well as Sidi Moktar, Longreach has the onshore portion of the Tarfaya block with a best case 711 million barrels of oil equivalent and directly east is the Zag Basin, which has “multi-TCF potential”.
The “money in the kitty” also allows Longreach to maintain its interest in the two blocks.
“We like our assets, we want to keep hold of our assets, particularly the ones onshore, and we want to take them through to production and cashflow,” says Benitz.
“The economics in Morocco are so attractive that it’s ridiculous to consider farming out. There is just too much money in the ground. These are valuable assets.”
The country’s fiscal terms are amongst the most attractive anywhere in the world. State participation is 25 per cent and they are full cost partners during exploitation and a 5 per cent royalty if gas is produced, which rises to 10 per cent for oil.
An unprecedented ten-year corporate tax holiday is offered upon discovery.
This means the government take is not more than 35 per cent. Contrast this with Algeria, where the authorities take up to 92 per cent and you can see why foreign investment is flooding into Morocco.
“We have always had the strategy of getting the best possible value out of the ground,” says Benitz.
“But from a stock point of view we have always had the overhang of financing risk.
“The money raised allows us to maintain our interests in all our onshore licences, and of course it has taken away that financing risk.”
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