Longreach Oil & Gas: Tapping into the huge potential of Morocco

One of the earliest entrants to Morocco, Longreach Oil & Gas (CVE:LOI) has spent the past five years building an impressive landholding in what chief operating officer Andrew Benitz describes as the “last under-explored basin in North Africa”.

It has a gross 13 million acres under licence, exposure to some of the most exciting exploration projects in the country and the potential for cashflow in the near term.

As an oil and gas jurisdiction, Morocco is as good as they come. The government take is minimal when compared with hydrocarbon-rich neighbours, Algeria or Libya.

And there is a ready source of domestic demand from a country which last year imported $10.7 billion-worth of foreign oil and gas.

The fiscal terms are amongst the most attractive worldwide with the state receives 25 per cent of any project and a 5 per cent royalty if gas is produced, which rises to 10 per cent for oil.  An unprecedented ten-year corporate tax holiday is offered upon discovery.

This means the government take is never more than 35 per cent. Contrast this with Algeria, where the authorities take 92 per cent and you can see why foreign investment is flooding into Morocco.

Total, Repsol and Anadarko are just three of the larger operators in country.

And under this regime, the economics of the smaller projects look very attractive.

Longreach has stakes in five licences in Morocco, operating its flagship project – Sidi Moktar, which is prospective for gas and promises the company’s first production and cashflow.

It has a 50 per cent working interest in the acreage in return for carrying out new seismic and the drilling of two wells.

Sidi Moktar is interesting in that it is bisected by the already producing Meskala field, which pipes gas to phosphate mines to the north.  

With  a pipeline infrastructure running through the Sidi Moktar licence, any discovery made by Longreach will be straightforward to tie in to begin cashflow production.

Two wells are planned for Sidi Moktar, with work scheduled to begin in the fourth quarter. 

The first portion of 2012 will be spent interpreting existing seismic, before shooting more to high grade prospects to identify a drill location, Benitz said.

The wells will target the Triassic sandstones, from which the neighbouring Meskala field is currently producing, though historic production on the Sidi Moktar licence has come from the shallower Jurassic zones. 

AJM Petroleum has a “best estimate” of 292 billion cubic feet of natural gas and a high estimate of 776bcf based on  five identified fields within the licence.

“The figures are only for Triassic targets,” Benitz said. “Lasmo used to operate in the area in the late 1990s and did a regional unrisked resource estimate for Sidi Moktar of 9 trillion cubic feet. So there is huge upside.”

The cost of drilling each well at Sidi Moktar is expected to be in the order of “$7-8 million” each, the Longreach chief operating officer revealed.

And while it is well funded with around $8.5 million in the treasury, the company will have to raise more cash if it is to develop at the rate it intends, Benitz confirmed.

With gas prices in Morocco at around $8 per Mcf, the payback is likely to be in the order of a year and a half based on historic flow rates. Similar wells drilled in vicinity during the 1980s are still going to this day.

Benitz said: “Payback is in the order of 18 months, giving around 20 years of profit potential.” 

The company also has a 22.5 per cent interest in the onshore Tarfaya exploration block, which is prospective for gas. London-listed San Leon Energy is the operator.

The offshore extension is owned by Tangiers Petroleum, and underpins the Australian firm’s $52 million market capitalisation.

Longreach, by contrast, is valued at around $14 million (giving an enterprise value of $5 million) despite having similar potential.

A total 1,450 kilometres of 2D seismic from Tarfaya has been reprocessed, which has identified 15 leads that independent reserve auditors, Netherland, Sewell and Associates, said have unrisked prospective resources of 711 million barrels of oil.

An additional 600 kilometres of infill 2D seismic was shot last year with processing expected to identify some drillable targets.

Longreach also holds a 22.5 per cent in the Zag exploration licence, which is also operated by San Leon Energy.

Covering over five million acres, the block butts up against Sonatrach’s 812Bcf discovery in the Tindouf basin and is a near neighbour of Repsol’s major gas discovery in the Reggane basin.

A 1,700km 2D seismic survey began in the final quarter of last year and was completed in January.  

Processing of the seismic is underway and once completed, a comprehensive review of the Paleozoic basin will be undertaken to assess the potential of a variety of plays.

The company’s smallest holding is in the offshore Sidi Moussa and Foum Draa prospects, where it has a 7.5 per cent interest.

The two areas have an extensive data set of 3D seismic shot by Enterprise Oil in 2001/2 with management indicating a “best estimate” of oil in place of 2.9 billion barrels.

Benitz describes the licence as having “huge potential”.

“Morocco offshore is now in hot demand with Kosmos and, more recently, Total taking up large acreage positions,” he said.  

“Our licences are without question the best explored with extensive 3D coverage, which has allowed us to identify a set of large prospects, which are now drill ready."