Oil exploration is making inroads into Tunisia. Tunisia is located in the northernmost part of Africa bordering the Mediterranean Sea between Algeria (to the west) and Libya (to the southeast). In 1999, The Hydrocarbon Law was established in the country to govern Tunisian exploration and production activities. Key elements of the law include the establishment of a framework for production sharing contracts. With favorable fiscal terms and a stable government the country continues to garner a lot of attention as a choice place of business in Africa's rapidly expanding oil and gas scene.
The basins in Tunisia are well established and understood and there is a lot of geological diversity in Tunisia, which creates a number of different play types to explore for. El Borma, Ashtart and Sidi el Kilani are Tunisia's main oil producing fields. Of these three oil producing fields, the largest and most successful field is the Sidi el Kilani field in north central Tunisia. This field has produced over 50 Million barrels of light sweet
crude from a small number of wells.
Canadian listed junior Africa Hydrocarbons (NFK: TSX-V) strategically positioned itself in the Pelagian Basin with over 130,000 acres and boasts 55Km2 of successful 3D seismic targets similar to Sidi el Kilani. The company has a 47.5% interest in two adjoining concessions, the Bouhajla and Ktititir blocks, located in north central Tunisia and only 25 kilometers west of the Sidi el Kilani oil field. These blocks were acquired approximately three years ago when the Tunisian government made them available for bidding after being off the market for over 25 years.
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The company's first prospect, Bouhajla North, will be testing a fractured carbonate chalk reservoir, which is very similar to what is found producing at Sidi el Kilani. The facility and pipeline for the Sidi el Kilani oil field is located only 25 kilometers away from Africa Hydrocarbons respective blocks. Historically, the facility was built to handle up to 25,000 bbls/d but now is only handling 1000 bbls/d and as a result, there is much excess capacity in this nearby facility. There is also a pipeline in place from the field all the way to the port facility on the coast that is also under-utilized. Significantly, Shell acquired a large land position around Africa Hydrocarbon's block last year and has since committed to spending over $150MM on their blocks. Of course, with Shell's announcement, other companies are also making the move into the area, keen to test the unconventional plays within the region.
With a discovery having similar production rates and reserves to Sidi el Kilani, the companies NPV10 based on its 47.5% working interest could be up to a $100 million, or higher, which is about 10 times the current market capitalization of the company of $10 million. It would turn the company into an intermediate producer. Furthermore, the company would be able to adequately finance a development project through warrant exercises and debt financing with minimal dilution to the shareholders. The company would look to start production from Bouhajla North, and follow-up in that area by preparing to penetrate the reservoir again with up to three new wells. Additional 3D seismic would also be acquired to delineate a number of other prospects on the company's acreage. Based on all the new data the company would be able to establish an updated reserve and resource calculation to highlight the size of the reserves and hydrocarbon potential in that area.
In the event of a smaller discovery, such proximity to the Side el Kilani infrastructure would mean minimal time and money to get any future production on-line. It would also allow for the option to truck oil to the facility to obtain some cash flow while on-site facilities and a short pipeline were built to Sidi el Kilani.
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The world will continue to rely on hydrocarbons far into the future. Africa Hydrocarbons could be one of the best junior African oil and gas stories due to potential near term production, low cost and size of the prize at their Bouhajla Block Prospect located in Tunisia's Pelagian Basin.
Company's like Africa Hydrocarbons are certainly paving the way for other junior explorers in Tunisia. The number of blocks being explored will only continue to increase as the country presently provides favorable fiscal terms and a stable government.
By Pamela A. Hastings