Tower Resources plc, the AIM-listed oil and gas exploration and production company announces its final results for the 12 months ended 31 December 2007.
Highlights:
Uganda
• 2D seismic survey completed early 2008
• Two wells planned to be drilled in 2008
• Costs largely covered by farmout agreement
Namibia
• 2D seismic survey completed
• Giant structures identified as viable exploration targets
• First exploration well may now be drilled in 2009
• Costs covered by farmout agreement
Commenting on the results, Peter Kingston, Executive Chairman of Tower said:
“Year 2007 saw progress with seismic surveys in Uganda and Namibia and Tower Resources is now entering an exciting 1-2 year period during which the potential of its current two Licences in Namibia and Uganda will be tested by wells. The potential of each licence is such that a successful exploration well in either would be classed as a "company maker".
The Board is also hoping to add a limited number of new ventures during the course of 2008.”
Financial Highlights
Operating loss over the reporting period from 1 January 2007 to 31 December 2007 was $1,284,471. Capital expenditure was $7,651,416 being the capitalised expenditure on exploration studies and seismic surveys. Third party funding was agreed from farm- in partners to meet $8,752,398 of the total investment commitment including recovery of some back costs. Cash balances at year end were $5,534,815 although significant amounts will be required in the first half of 2008 to meet the cost of operations still underway at the end of 2007. There is sufficient capital to fund the Company’s activities over at least the next six months and an expectation that new funds can be introduced if necessary to meet commitments for the remainder of 2008 and 2009.
Operations Summary to end of 2007
Uganda
The first half of 2007 was focused on completing technical evaluations; preparing for seismic operations; and holding discussions with potential funding partners. A six-month extension to the First Exploration Period, to 27 March 2008, was approved in February 2008. This allowed for expected delays in starting the seismic programme (the Second Exploration Period is now in effect). In mid-2007, a small operational organisation was put in place to manage the seismic programme led by Marilyn Hill, a former oil and gas banker having wide experience of working in developing countries at senior levels of government.
While Neptune Petroleum (Uganda) Limited, Tower's Uganda operating subsidiary, prepared to conduct seismic operations, an Option Agreement was finalised in August with Orca Exploration Group Inc, a Toronto TSX Exchange listed company which operates the Songo Songo gas production and distribution venture in Tanzania. Under the terms of the Agreement, Orca undertook to fund 83.33% of seismic operations and certain back costs up to a contribution by them of $US6 million. Above a gross cost of $US7.2 million, costs were to be shared 50% each. In return for this funding, Orca has an option to participate in a two well drilling commitment programme, funding 83.33% of drilling costs ($10 million out of the first $12 million) and a like proportion of testing costs ($5 million out of the first $6 million) with cost sharing beyond the agreed limits to be 50% each. Orca would become a 50% Licence interest holder on committing to the drilling programme. Orca has an agreed period from completion of seismic processing work to make further commitments which, in effect, gives them until about end May 2008 to reach a decision on whether it wishes to proceed.
The commencement of seismic recording was delayed until 6th December 2007 because of bad weather related delays to programmes with other operators. After a slow, weather affected start, the programme was completed in very good time, on 12th February 2008. Additional gravity data was also recorded, to fill in gaps to the north and south of the seismic recording area and to provide a direct correlation with recorded seismic.
Namibia
Seismic operations began on 25th August 2007 and 735 kms of 2-D seismic data were recorded in the period to 2nd September 2007. The prime area of focus was in the north west of the licence where interpretation of bought seismic data had revealed giant structures under deep water (up to 1,500 metres) with indications of hydrocarbons. The new data is of high quality and a comprehensive data processing and interpretation programme was still underway at year end.
On 20th September 2007 the Minister of Mines and Energy of the Republic of Namibia approved the farm-out of an 85% interest in Tower's licence, covering offshore blocks 1910A, 1911 and 2011A, to Arcadia Petroleum Limited (Arcadia). The Minister also approved the transfer of the Operatorship of the licence to Arcadia. He had previously agreed an extension of the initial exploration period from two years to four years to accommodate Arcadia's proposed programme.
Under the terms of the farm-out, Arcadia has committed to fully fund a programme of activity in four parts which includes:
• shooting and interpreting the recently completed 2-Dimensional seismic programme;
• recording and interpreting a 3-Dimensional seismic programme, presently contemplated in early 2008;
• an exploration commitment well;
• a second well which might be an appraisal well or a second exploration well.
Arcadia has the option to withdraw from its commitment at the end of each of these four stages of operation or to assign all or part of its interest to a third party agreeing to meet the funding commitment. In the case of withdrawal and failure to assign, the full 85% interest will revert to Neptune. Arcadia has also reimbursed 85% of certain historic costs to Tower amounting to about US$1.6 million.
Arcadia Petroleum Limited is a substantial trader of oil and related products. They bring considerable financial strength to the licence as well as access to very relevant expertise in exploration, development and shipment of oil and natural gas.
Since Year-end
Uganda
The basic seismic processing is now complete and it has confirmed the structural features identified by the gravity interpretation. More specific processing will now be targeted at optimising and ranking specific drilling locations and investigating the presence of hydrocarbon indications. This work is important to thoroughly assess and rank the probability of success for each well location. Confirmation has been received that Tower is authorised to continue as the sole Licensee into the Second two-year Exploration Period. Orca Exploration Group is expected to decide on their future intentions under the terms of the Option Agreement by end-May. It is expected that a recommendation in respect to the forward 2008 programme will be made to the Tower Board and subsequently to the Uganda Government by end-June 2008.
Comprehensive processing and interpretation of the 2-D seismic data is near completion. Results to date have confirmed that the giant prospects previously identified are viable exploration targets, having apparent four-way structural closure and strong hydrocarbon indications. However, geological modeling has indicated a potentially different reservoir type and construction and this changed perception is currently being built into the assessment of future programme priorities. Recommendations are presently expected to be finalised by Arcadia for partner and government approval by end May 2008.