Tangiers Petroleum Limited has informed that a DWOP (Drilling Well on Paper) meeting was held in Morocco on 22 April 2014, which was attended by Galp, ONHYM and Tangiers. At the meeting, the Operator, Galp, confirmed the indicative budget for the drilling of TAO-1 exploration well, offshore Morocco, to be in the order of US$75m.
The estimate provided by the Operator, Galp, is a Class II estimate and therefore subject to a plus or minus 25% variance. The Operator estimates TAO-1 to spud mid to late June and Tangiers expects to be issued a final AFE approximately 4 weeks prior to this date. Tangiers is obligated to pay 33% of any costs associated with the drilling over and above the US$33m cap carried by Galp.
Tangiers has said that that the indicative budget provided by Galp is subject to a significant variance, both up and down, and to ongoing work being carried out by the Operator, Tangiers and ONHYM under the joint venture to improve the accuracy of the budget estimate. There is a risk that Tangiers may face a well funding commitment which is not covered by Tangiers’ current financial resources. Based on the current indicative budget and without taking into account requirements for working capital, the Company’s potential financial obligation related to drilling of the TAO-1 exploration well ranges from having ~US$6m surplus cash (-25% case) to ~US$0.06m surplus cash (base case) to a shortfall of US$6m (+25% case). Were Tangiers unable to meet its financial obligation under the joint venture agreement for the TAO-1 exploration well, there is a risk that it would be in default of the terms of the JV agreement, in which case it could forfeit some or all of its interest in the Tarfaya Offshore Block.
Given the confirmed drilling budget, the proximity to the spud date of the well, and the Company’s current funding capacity of approximately A$15m, the Tangiers Board has agreed it is prudent to undertake a capital raising to ensure that Tangiers is well positioned to fulfil all of its obligations associated with funding of the drilling program.
The farm-out value implied for Tangier’s 25% working interest was US$40.5m, roughly equivalent to the Company’s current market capitalisation, and the Board is confident of being able to raise the necessary funds to protect shareholders from any loss of interest in the asset that may arise from default.
Tangiers has requested a voluntary suspension on ASX. The Company expects that the voluntary suspension will end when it releases an announcement to the market in relation to the proposed material capital raising, which is currently expected to be released before the start of trading on 9 May 2014.
The Company’s securities will continue to be suspended on AIM pending further clarification.