A ‘Free Ride’ in the Hottest Exploration-Development Play on Earth

by Keith Schaefer on October 16, 2013



The East Africa oil play is now moving to the second level—development.  Exploration in the area has been so successful that well costs are coming down, and pipeline planning is heating up.

Tullow Oil (TLW-LSE) and Africa Oil (AOI-TSXv) have been the leaders, going four-for-four on their exploration, and discovering some 300 million barrels.  During that time, Africa Oil has improved their drilling time from 70 days drilling to just 25—a huge cost savings.

The prospect of imminent royalties has Uganda and Kenya getting ready to build a pipeline from the oilfields of East Africa to the south Kenyan coast.

What’s interesting, though, is all that oil has been found in the western Lokichar basin of  Kenya.  For investors, all the leverage is now in the eastern Anza basin—the industry is looking to find the same “string of pearls” in the east as it has found in the west.

Costs are lower, and geological understanding is greater—so Big Hits are more likely to happen now.

And the action there is already happening.

The junior with the best leverage to this—in a moment.  They have a free ride on what could be the biggest global oil discovery in the next nine months.

The set-up is simple.  The Anza Basin is huge, and has at least three high priority targets—the first three pearls in the string—about to get drilled.  They’re all getting drilled in the same geological formation, the Tertiary part of the Lower Cretaceous.  This is the same formation that has proved up 6 BILLION barrels of oil just north in Sudan.

One high priority target has already spud.  Just a few days ago, Africa Oil spud its Bahasi-1 well (formerly Kinyonga), which is targeting a 320 million barrel win.  Their partner on this well is Marathon Oil (MRO-NYSE), which paid a cool $57 million to be 50% in this area. Somebody thinks this trend has a lot of potential ;-).

The Market could hear news on that well by Christmas.  Then that same drill rig will be moved directly to their Sala prospect (formerly Pundamilla), which has an independent report saying best estimates on a successful well would mean 400 million barrels.

700 million barrels is a lot of leverage—but the big leverage is NOT with Africa Oil.

It’s with the junior right beside them with just a $32 million market cap and a free ride through four wells—including two of their own, all in the same formation.

It’s Taipan Resources—TPN-TSXv.  They are about to have their time in the sun.  And they have one of the best prospects for the eastern string-of-pearls investors are looking for in eastern Kenya.

They just signed a $31 million farm-out deal with London listed Premier Oil (PMO-LSE) on their Block 2B in the Anza Basin that touches Africa Oil’s Block 9 with both Bahasi-1 and Sala.

Both companies think they have the sweet spot of the Anza Basin in Block 2B. Premier produces 60,000 barrels of oil equivalent in areas all over Europe, Asia and Africa.

For Taipan, that means no dilution, a cashed-up treasury and a free ride on the next three wells in Anza. That’s where I want to be on a new basin play that has a great shot at being the biggest oil discovery in the world over the next nine months. Not the next nine years, the next nine months.

With this deal, Taipan is a different company.  They control their own destiny. One very important point in this deal is that they remain the operator—it means:

1)    they control the news flow.
2)    their minority 45% WI is still very attractive for someone who may want to buy into the play.  It means Premier Oil is not the only logical buyer.
3)    The market deeply discounts non-operators.  It means they’ll get full value for their discoveries in their stock.
4)    If their first well hits in a few months, they could still farm down to 25% for a lot more than what this Premier Oil deal is worth.  Considering they have over 6 million gross acres in Kenya, 7 high priority targets, and a lot of other prospects with almost no exploration done—says they can still have a high priced stock with few shares out and be producing a lot of oil.

Their timing on this deal is perfect.  If Bahasi-1—the best comparison play to their own on Block 2B—is a discovery, Taipan’s stock is going to move a lot more than if they were the non-operator, or had to still raise money.  Even with a 45% WI, their stock has a lot more leverage now.  There’s no cap on the stock.

There’s no doubt in my mind any success at Bahasi-1 will get reflected in Taipan’s stock.  There could be two pearls in the string—Sala as well—by the time Taipan spuds their well in Q3 2014.

Their first well is called Pearl-1—of course.  Like Bahasi-1, it’s a 4-way dip closure, which is a fancy way of saying they think the oil is trapped up under a huge pyramid-shaped formation.  It’s the simplest style of conventional oil trap.

After waiting 8 months to select their partner—in the end it came down to a dogfight between two heavyweight African explorers—Director Joel Dumaresq says Taipan is ready to move fast now.

“We’re in a position to really go from a running start as this farm-out gets done. We’ll complete our last round of seismic to further lock in the drilling target—Pearl-1—that we and Premier agreed upon.”

And at Pearl, that Tertiary formation is thick—some 12,500 feet thick.   That can hold a lot of oil.  And the fact they and Premier agreed on the #1 drill site…says it’s as low risk as you can get in their Anza Basin trend.

They actually have seven Tier 1 targets on their eastern Block 2B—that are very similar to the African Oil discoveries in western Kenya—but the Market will only pay attention to Pearl-1 as drilling time gets closer. The Market loves to see a deep drilling inventory.

Taipan has transformed itself at the perfect time.  Infrastructure is increasing, costs are decreasing and exploration cycle times are coming down.  Drills are turning now in elephant country, and their stock is now free to run, with all of its financing needs satisfied.

The stock closed Monday at 38 cents, but it’s really a free ride for investors in the hottest exploration – development play on earth right now.

This story has been sponsored and reviewed by Taipan Resources.


DISCLAIMER: The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons.  Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom.  Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements.  No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.

Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity.  He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.

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