Edison Investment Research: Pan-African 2014 drilling in foc Taipan Resources (TPN CN)
Taipan (market cap C$37m*) has interests in two wells being drilled in 2014.
The first is a 30% interest in the Pearl-1 well in Block 2B onshore Kenya. Pearl will target 251mmboe according to Sproule and should spud in Q314 at a cost of between $18-25m according to Taipan, though it is carried up to a cap of (gross) $29.5m. The company puts the GCoS at 30%. Importantly, a February CPR by Sproule has placed an estimate of gross unrisked mean resource
in the block of 1,593mmboe, providing very significant upside should exploration at Pearl be successful. We note that Africa Oil is currently preparing to drill the 400mmboe Sala-1 prospect in neighbouring Block 9 with Marathon. Results should be known by mid-April.
The Khorof well, operated by Afren in Block 1, is estimated to hold 380mmboe, of which Taipan currently holds 20%. Taipan is not carried for this well, as it performed a farm-out with Afren for seismic costs. It will therefore have to fund its share of the drilling costs. For the purposes of this report, we assume that it executes a farm-down on broadly similar terms to its PMO farm-out in
Block 2B. We therefore believe Taipan will sell down 8-10% to fully carry its $5m (estimated) drilling costs. Given its financial situation, we assume it is not in a great negotiating position, so assume it will retain a 10% interest. The current plan is to drill the well in Q314.
We caution that Taipan holds very little cash ($750k as at conference call in October 2013) and a further equity issuance to fund ongoing operations is likely in our view.
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