Sirocco Energy offers exposure to hot east African oil play - Proactiveinvestors (AU)

Proactiveinvestors Australia

Sirocco Energy siroccoenergy.com.au/

Sirocco Energy (ASX: SCY), formally Agri Energy,  is a conventional, onshore oil and gas exploration company focused on the African continent.

The company's primary focus is the unlocking of the resource potential of Block 14 in the Republic of the Sudan and in the heart of the prolific north east Africa oil region.

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Sirocco Energy offers exposure to hot east African oil play

Thursday, December 13, 2012 by John Phillips

Given the relative valuations of other African listed oil & gas explorers, Sirocco Energy - with a Market Cap. of just $6.5 million - represents a very attractive entry point within its peer group for investors seeking exposure to the ongoing African on-shore oil boom.

Given the relative valuations of other African listed oil & gas explorers, Sirocco Energy - with a Market Cap. of just $6.5 million - represents a very attractive entry point within its peer group for investors seeking exposure to the ongoing African on-shore oil boom.

Agri Energy Ltd, now restructured and re-branded as Sirocco Energy Ltd, has joined with major oil companies looking to drill in onshore Africa.

The Company is acquiring a 37.4% beneficial interest in the giant Block 14 – a highly prospective frontier block in northwestern Sudan covering 100,000 square kilometres - through a direct 49.9% interest in an African explorer with a 75% Working Interest in the Block.

A Competent Persons Report completed by Synergy outlines potential for 1.5 billion barrels of gross un-risked prospective resources within the Block.

The Block is surrounded by multi-billion barrel oil producing provinces.

A prospectus has been issued for 20 million shares at $0.20 each that allows for an oversubscription of 15 million shares.

This will garner between $4 million and $7 million to fund exploration.

STRUCTURE

Old Share Price: $0.008
Old Issued Shares: 750.2M now consolidated to 32.6M New Shares
Market Cap: $6.5M
Cash: $0.2M
EV: $5.6M



ANALYSIS

Sirocco Energy in a joint venture with Statesman Resources (TSXV: SRR) have committed to the development and pursuit of oil and gas assets in Africa. Both companies share an almost identical board of directors that have strong technical credentials and are supported by a successful track record.

The acquisition of Block 14 by the partners is supported by an independent study completed by Synergy that has identified gross unrisked prospective resource of 1.5 billion barrels of oil.

It contains unexplored Mourdi and Mesaha sub basins, and that the current limited dataset validates Block 14 as a frontier exploration play with potentially high reward exploration acreage with very close similarities with the Murzuq and Ghadames basins in Western Libya.

The report further confirms that significant de-risking can occur over the next 12-18 months through detailed exploration across the block, and influenced by ongoing drilling programmes that are currently occurring immediately to the north and south of Block 14.

This will increase the chance of success with the first well, and help reduce dilution from fundraising to support ongoing exploration.  


RECONSTITUTED MANAGEMENT TEAM FOR Sirocco Energy

Greg Channon serves as Managing Director and is a geoscientist with over 25 years of experience in the oil industry and has broad technical and commercial experience.  He is currently a Director of Statesman Resources (TSXV: SRR), served as the Executive Director of Brightoil Petroleum, and has held management and technical roles with Salinas Energy, Shell New Zealand, Santos, Delhi Petroleum, Fletcher Challenge Energy, Shell and Swift Energy.

Dougal Ferguson serves as Finance Director and has over 20 years of experience in the oil and gas sector, working in senior commercial and financial roles for both domestic and international companies. He was Finance Director of Neon Energy Limited (formerly Salinas Energy Limited) and was the principal driver behind the acquisition of Neon Energy Pty Ltd by the public company, and served in senior positions with Brightoil Petroleum, ARC Energy Limited, Adelphi Energy Limited, Discovery Petroleum Limited, Premier Oil and Hess Corporation.

Patrick Burke serves as a Non-Executive Director who holds a Bachelor of Laws degree from the University of Western Australia, and has 15 years of experience working in law firms and companies in Australia and Ireland. His expertise is in corporate, commercial and securities law with an emphasis on capital raisings and mergers and acquisitions. He contributes general corporate and legal skills along with a strong knowledge of the Australian Stock Exchange requirements.

Michael Earl serves as Joint Operating Company President for Block 14 and is based in Khartoum, Sudan. He is a Petroleum Geologist with 28 years of Experience in Sudan, Libya, Egypt, Middle East, South East Asia and Europe, and has worked with B.P., Hess, Lasmo, and OMV.


SHAREHOLDING AND FUNDING

The old shares of Agri Energy have been consolidated 1 for 23, resulting in the issue of 32.6 million new shares in Sirocco Energy. Following the completion of the current offering the Company will have an issued capital of 53.3M – 68.3 million new shares and hold cash of $4.35 million to $7.35 million.

Current major shareholders are Mino Strategies with 2.3 million new shares / 7.1%, and Ascent Capital with 6.8 million new shares / 20.9%.

6.5 million unlisted options will be issued at exercise prices of $0.25 - $0.69 that expire from 2014 – 2016.


FLAGSHIP PROJECT – BLOCK 14 – NORTHWESTERN CORNER OF SUDAN


 
PURCHASE TERMS AND COMMITMENTS FOR BLOCK 14

The Company is acquiring a 37.4% interest in Block 14 via the purchase of a direct 49.9% interest  in Statesman Africa Ltd from Statesman  Resources Ltd  (TSXV: SRR) for a nominal consideration.

Both companies are linked with Dougal Ferguson and Greg Channon serving on both boards, and Michael Earle serving as JOC of operations within Sudan. Both entities have established a 12 month agreement to jointly pursue other oil and gas opportunities in Africa, and leverage Statesman’s operating capabilities and contacts in Africa.

Sirocco, which has been named after a wind that blows through the Sahara, confirms that there is a very strong international interest in African oil and gas exploration and development, and sees this as a key growth area for the Company.

Statesman Africa Ltd which was a wholly owned subsidiary of Statesman Resources was recently awarded a 75% Working Interest in Block 14 that covers 100,000 square kilometres in northwestern Sudan.  The Joint Venture currently constitutes three entities that include Statesman Africa Ltd which is obligated to pay 83.3% of operating costs, and Express Petroleum with a 15% Working interest and is responsible for the balance of operating costs of 16.7%.

The Sudanese Government is the third entity in the venture, and retains a free carried 10% interest through The Sudan National Petroleum Corporation (Sudapet).

Sirocco has already advanced Statesman US$800,000 for interim funding, and will form part of the overall funding obligation incurred by the Company.

The venture partners have been granted an EPSA by the Sudanese Government over Block 14, and have agreed to a minimum work commitment of US$12 million over 3 years that includes geology, geophysical and gravity studies for $2 million, 1,000 kilometres of 2D seismic acquisition for $3 million, and drilling of one exploration well for $7 million.

Sirocco is obligated to contribute a pro rate share of the security bond of $2.5 million, technical studies of $0.83 million, seismic acquisition of $1.25 million, and drilling costs of the first well of $2.91 million.

An optional second and 18 month long commitment at a total cost of $12 million will consist of $5 million for 4,000 kilometres of 2D seismic and $7 million for a second well. The Sirocco commitment to this optional second stage programme is $4.99 million. 


SUDAN IS AN ATTRACTIVE DESTINATION FOR FRONTIER EXPLORATION

Block 14 is located in the remote and uninhabited northwest corner of Sudan that abuts the borders of Egypt and Libya, is covered by the Sahara Desert, and remains significantly underexplored for oil and gas resources. 

Block 14 is located within an oil province that hosts oil reserves of 4.4 billion barrels of oil in Egypt and 47 billion barrels of oil in Libya. Prior to the separation of North and South Sudan in 2011 the country held total oil reserves of 6 billion barrels of oil and produced 0.5 million barrels per day. 

The country has a population of 34.2 million people, and is extremely poor with a GDP of $2,700 per person. The country has had a long history of strife but has very significant upside that could be developed from large areas of cultivatable land for agricultural production, along with gold and potential oil resources.

Country wide oil exploration success is currently rated at greater than 50%, and hosts strong basin analogues with significant oil producing areas in surrounding countries. International oil majors operating in Sudan include China National Petroleum Company, Petronas, and Oil and National Gas Corporation of India.

The recent 2012 licensing round attracted more than 70 bidders that included a number of western companies, with all blocks awarded to international exploration groups.


PREVIOUS EXPLORATION ON BLOCK 14

Historical exploration on Block 14 was completed at an expenditure of $15 million, and technical data from these studies is now available at no cost to the Joint Venture partners.

In 2005 Sudapet and Petro SA completed an airborne gravity and magnetic survey over the western half of Block 14, and in 2007-2008 completed an additional 1,200 kilometres of seismic.



This work identified two main depo-centres known as the Mourdi and Mesaha Sub-Basins, which are part of the larger Kufra Basin which is situated in Libya in Chad and Sudan.



The Mourdi Sub-Basin is a “sag basin” and has many stratigraphic similarities with the Murzuq Basin which contains significant commercial discoveries including the giant Elephant (El Feel) Field.

As such, it is expected to have a similar basin evolution, hydrocarbon plays, and source, reservoir, seal and trap characteristics to the more explored Kufra Basin.

This sub-basin has potential for mature Lower Silurian and Devonian Shale that are known as source rocks for the most prolific petroleum systems in northern Africa. Technical data shows basinal highs that are indicative of good migration pathway and trap formation.

While the Silurian hot shales are only locally developed, it is proven to be a very effective source and typically 30 times richer than the normal Tanezzuft shale.

The Mesaha Basin is located in the central part of Block 14, and is a “pull-apart basin” that has potential for Lower Silurian and Devonian Shales. The basin extends to the north and into Egypt where Petroceltic and Beach Energy are conducting ongoing exploration.  

Petroceltic and Beach have recently spudded the Mesaha-1 well in Egypt to test the stratigraphic section on the flank of a large structure identified from recent 2D seismic data.

It also appears to be more structured than the Mourdi, indicating a greater potential for traps and with greater relief.

A detailed microbial study was undertaken over the central section of the block that covered the Mesaha Basin and was completed after the initial seismic acquisition produced positive results.

This work consisted of around 1,000 boreholes that were drilled to a depth of 4m for microbial sampling, and reported anomalous readings over the top of structural leads that is an early indicator for the presence of a petroleum system located at depth.

This type of testing identifies the presence of specialised hydrocarbon oxidizing bacteria in surface soils that break down hydrocarbons that have migrated from hydrocarbon bearing structures that are buried deeper within Block 14.

Identification of these anomalies is the first sign that a working hydrocarbon system could be present in Block 14 and reduces Block 14’s critical risk of the presence and maturity of source rocks.

It is also worth noting that Block 14 is about half the size of the North West Shelf and as large as the Cooper Basin in Australia.




INDEPENDENT STUDY IDENTIFIES CONCEPTUAL POTENTIAL OF 1.5B BARRELS OF OIL

The Joint Venture partners have recently completed a Competent Persons Report for Block 14 that was independently produced by Senergy Ltd. This report identifies potential for a gross un-risked total prospective resource of 1.5 billion barrels, and is based on 30 potential traps containing a best estimate of 50 million barrels each.

Based on an analogue with the nearby Muzurq Basin the independent study estimates 25-35% of the entire block is prospective, and identified the gross resource range of each trap to be from 20 million barrels (low or P90 range) to 200 million barrels, with the best estimate being 50 million barrels. This equates to a net un-risked prospective resource of 560 million barrels to Sirocco for their 37.4% interest.

Senergy determined that Block 14 is frontier exploration with potentially high reward hydrocarbon exploration acreage. The chance of exploration success is currently estimated at 1 in 22 and is based on the limited data that has already been generated.  This can be further de-risked to increase the chance for success to 1 in 12.5 by planned seismic acquisition, and lead and prospect mapping.

The chance for exploration success can increase further to 1 in 3.3 if a petroleum system is proven by nearby drilling in the Mourdi or Mesaha Sub-Basins, and includes the Mesaha-1 well which is currently drilling directly to the north of Block 14.

Block 14 also borders Libya where the historical chance of success in the Murzuq Basin with 2.2 billion barrels of oil is currently greater than 1 in 2.5, and is considered an analogue to Block 14.

Existing seismic over Block 14 is likely to be reprocessed with scope for data exchange with adjacent blocks while future seismic acquisition will use fast track processing and interpretation to maximise the chance of identifying drillable targets.

The minimum 1,000 kilometres of 2D seismic could firm up to four leads as drilling prospects.


DRILLING PROGRAMS AROUND BLOCK 14 MAY HAVE HIGH IMPACT

Petroceltic is currently drilling a wildcat well called Mesaha -1 within the Mesaha Basin on a permit that abuts Block 14 to the north, and contains the same unexplored sedimentary basin.

This first well is aimed at establishing basin stratigraphy within a potentially major rift system that is up to 20km wide, and where surface geochemistry indicates the presence of a hydrocarbon footprint. The permit area has billion barrel Stock Tank Oil Initially In Place potential.

The near term completion of Mesaha -1 will assist in defining the prospectivity of the Mesaha Basin, which also occupies a significant part of Block 14.

A second well was recently completed by the Sahara Oil Co. and Al Qahtani Joint Venture on Block 12A, which abuts Block 14 to the south. The well was located about 150 kilometres south of Block 14, within the Mourdi Sub-Basin, and reported intermittent oil shows over a 300 metres interval possibly in Devonian sandstones. 

This could indicate the presence of an economic oil source in the area, and a second well may be drilled in the block to evaluate this potential.

Simba Energy (TSXV: SMB) has also acquired the Erdis Block III in Chad that is within the Erdis / Kufra Basin, and is located immediately to the southwest of Block 14. Simba is completing seismic work across the Erdis Block and considers the area to be highly prospective.


CATALYSTS FOR 2013

- Prospectus for current fund raising has issued and has a closing date of 14 December of 2012, allotment of shares is set for 18 December, and ASX listing date is 21 December.
- Results of drilling at Mesaha -1 are expected over the next few months, and will add to the interpretation of geological structure and prospectivity of Block 14.
- Technical studies and re-interpretation of seismic completed, followed by release of updated resource estimates for Block 14.
- Second well drilled on adjoining Block 12A.
- Seismic acquisition completed on Block 14.
- Prospect generation and new resource estimate completed on Block 14.
- Planning for first exploration well underway at end of 2013 for Block 14.


ANALYSIS

Sirocco Energy is now an active participant in a major push for onshore hydrocarbon assets that has spread across Africa and is led by a host of international oil explorers and developers that include Africa Oil Corporation (TSXV: AOI) which has major acreage positions in onshore East Africa, and Kenya.

AOI reports several new frontier oil discoveries in Kenya from wildcat drilling that have driven up the market capitalization of the company by more than 400% to C$1.8 billion over the last nine months. 

Australian explorers such as Jacka Resources (ASX: JKA) have undeveloped holdings in Somaliland, Tanzania and Nigeria and already attract a market valuation of $63.7 million built around joint venture funding for future drilling programmes.

Other developers include Simba Energy (TSXV: SMB) which is capitalised at C$23.8 million and has holdings in West Africa, and more recently has secured holdings that are immediately to the west of the Sirocco interests  at Block 14.

Sirocco Energy has:
- An experienced management team that is in place in both Perth and Khartoum.
- 560MMbbls of Net Prospective Resource within massive exploration acreage
- A clear de-risking process in place to add significant value.
- Operating in a region where exploration is increasing rapidly.
- Highly leveraged to the discovery potential of a new oil province through a tighter share registry and lower market capitalization. 

Given the relative valuations of other African listed oil & gas explorers, Sirocco Energy - with a Market Cap. of just $6.5 million - represents a very attractive entry point within its peer group for investors seeking exposure to the ongoing African on-shore oil boom.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX “Small and Mid-cap” stocks with distribution in Australia, UK, North America and Hong Kong / China.

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