Tower Resources shares rise on updated Thali reserves report

Africa-focussed oil and gas company Tower Resources has received an updated independent reserves report from Oilfield International (OIL) on behalf of its wholly-owned subsidiary Tower Resources Cameroon, it announced on Friday, covering its Thali production sharing contract, offshore Cameroon.

The AIM-traded firm said the report, which conforms to SPE_PRMS guidelines, did not contain new technical information compared with the previous report of 1 November 2018, but it did reflect updated prices and costs based on market changes over the intervening 16 months.

It said ir contained gross mean contingent resources of 18 million barrels of oil across the proven Njonji-1 and Njonji-2 fault blocks, which were unchanged, with a development contingency probability of 80% on the first phase and 70% on the second phase.

Gross mean prospective resources of 20 million barrels of oil across the Njonji South and Njonji South-West fault blocks were also unchanged.

Tower said gross mean prospective resources of 111 million barrels of oil across four identified prospects in the Dissoni South and Idenao areas in the northern part of the Thali licence were also unchanged.

It said the net present value at a 10% discount (NPV10) of the best estimate of contingent resources using the Sproule energy forecast was $179m, with an expected monetary value at a 10% discount (EMV10) of $143m, although it noted that the figures were based on a 29 February, forecast based on a 2021 Brent price of $68 per barrel.

The NPV10 of the best estimate of contingent resources using the March 10 2020 Brent Forward Curve was $119m, with an EMV10 of $91m.

Tower said those figures compared with the 2018 reserves report NPV10 of the best estimate of contingent resources of $158m, and an EMV10 of $118m, using the then-current Brent Forward Curve at a time when the 2019 forward Brent price was more than $71 per barrel.

The board said the reasons why the NPV10 and the EMV10 of the contingent resources at Njonji had fallen by less than 25% compared to the 2018 report, despite an approximate halving of the oil price, were that forward Brent prices had fallen by less than prompt prices, which was usual when the prompt market was oversupplied.

It also pointed out that the projected costs of the project, which were low, had actually fallen somewhat, reflecting the company's actual experience in sourcing equipment and services for the NJOM-3 well.

The profit allocation mechanism in the production sharing contract attributed a greater share of oil to the contractor when oil prices are low, and a smaller share of oil when prices are high, which Tower said could be observed in the different volumes of recoverable oil "attributable to Tower" for the different price scenarios.

“We are pleased to present this updated 2020 reserves report on the Thali licence in Cameroon,” said chairman and chief executive officer Jeremy Asher.

“I already observed last year that our project economics were attractive across a wide range of oil price scenarios, and in September last year I presented one of our internal cash flow forecasts showing the very attractive cash generation from the project assuming a flat $40 per barrel Brent price, which can be still be found in our September 2019 corporate presentation on our website.

“The 2020 Reserves Report confirms the attractiveness of the Njonji project economics.”

Asher said it was also worth noting that the riskier prospective resources on Thali could be tested at a “very low cost” during the process of developing the contingent resources already discovered.

“In particular, the phase 1 development process at Njonji will also test the Njonji South prospective resources of 18 million barrels, which would be additional to the 18 million barrels of existing contingent resources already discovered at Njonji, thus providing a natural additional upside to the project which is not reflected in the NPVs and EMV10 of the contingent resources.

“So even in the lower oil price environment in which we now find ourselves, which echoes the price environment at the end of 2015 shortly after we first entered the Thali license, the Thali license is an attractive asset which we expect will earn excellent returns.”

At 1412 GMT, shares in Tower Resources were up 4.76% at 0.33p.