Malcolm Shaw-Hydra Capital: TAO On Tuesday, Tag Oil (TAO.V, last at $0.465) reported that it has secured the rights to develop the Abu Roash F horizon in the Badr oil field, located in Egypt’s Western Desert. The Abu Roash F (ARF) is the primary source rock for the oil found in much of this particular basin. It is a dolomitic limestone which management compares to the Eagleford in Texas in terms of rock properties. The Badr oil field consists of a series of stacked pay intervals divided into horizons using the alphabet. The “ARF” horizon is apparently what caught TAO’s eye some time ago. Armed with the analysis of existing data and decades of industry experience, management believes that the ARF is amenable to development using horizontal drilling and multi-stage fracture stimulation… potentially unlocking a significant oil resource in a field that already has all of the infrastructure (built by Shell) in place to produce it. Having infrastructure in place means that if TAO is successful, it can get oil onstream and start cash flowing very quickly from this asset, which is a big positive.
TAO’s plan isn’t a total science experiment. Over the years, a handful of historical vertical wells in the field were completed in the ARF zone (none were fracked), testing at rates that TAO characterizes as “considerable”. As a result of the tight nature of the ARF zone, these historic wells declined quickly, just as vertical completions in similar zones in North America did until industry figured out how to develop these kinds of reservoirs. Given the proven existence of mobile oil in the ARF, combined with reservoir properties that compare well with known resource plays here at home, I like TAO’s set up here quite a bit. Anyone who knows the oil industry and this team will recognize that the company could be onto something material with this play, but time will tell. I continue to add to TAO at these levels as I’m not fussed about the dimes when I think dollars are on the table.
To be sure, there are a lot of details yet to be flushed out for TAO (PSC terms, scale of the resource, timing of operations, potential well economics, and budget to name a few), but my trust in management’s ability means that I’ll just sit back and let them execute. In this market I’m not sure that shouting from the rooftops does much, but count me as shouting from the rooftops on this one. There’s a marketing roadshow starting next week and management will be out telling the story for the first time. I think that the theme of exporting North American knowledge abroad in order to squeeze more oil out of proven fields is very good one. Here’s hoping that Abby has a tiger by the tail again.