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Tower Resources says reserves update confirms “attractiveness” of Njoni project

Published: 04:04 13 Mar 2020 EDT

Tower Resources PLC - Tower Resources says reserves update confirms “attractiveness” of Njoni project

Tower Resources PLC (LON:TRP) has reported an updated reserves report for the Thali project, offshore Cameroon, where the company has been awaiting the completion of a farm-out deal.

It updates the prior 2018 reserves report and whilst it does not reflect any changes in terms of technical information, it has been updated to reflect price and cost changes over the past 16 months.

The new third-party assessment, authored by Oilfield International, confirms 18mln barrels of proven reserves in the Njonji-1 and Njonji-2 fault blocks (unchanged on previous estimates) along with 20mln barrels of mean prospective resources across the Njonji South and Njonji South-West fault blocks.

Gross mean prospective resources estimated across four identified prospects in the Dissoni South and Idenao areas are also unchanged at 111mln barrels.

READ: Tower raises capital as Thali farm-out nears completion

The report gives a NPV10 asset valuation of US$179mln for ‘best estimate’ contingent resources, though that was based on an oil price figure from February (US$68 per barrel) so does not reflect prevailing market prices.

A similar value estimate, for the ‘mean estimate’ of contingent referencing a March 2020 Brent price, has so far reduced to US$119mln compared against the US$158mln estimated in 2018 which referenced US$71 per barrel crude.

Tower highlighted that the forward Brent costs used in the estimates have fallen by less than the ‘prompt prices’ – for example, it notes that a 2021 forward price comes in at around US$44 per barrel.

It also noted that projected costs were already deemed to be low and have fallen lower amid the recent industry turmoil.

The company also explained that the profit allocation mechanism in its production sharing contract (PSC) with Cameroon attributes a greater share of oil to the contractor when oil prices are low, and a smaller share of oil when prices are high – therefore between the 2018 and the 2020 report there are higher volumes of crude attributable to Tower.

Confirms “attractiveness” of Njoni project

"We are pleased to present this updated 2020 Reserves Report on the Thali licence in Cameroon," said Jeremy Asher, Tower chief executive.

“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/bbl 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.”

“It is also worth noting that the riskier prospective resources on Thali can be tested at very low cost during the process of developing the contingent resources already discovered.”

Asher added: “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."

Recent working capital funding

Early this week, Tower raised £500,000 in a share placing to provide working capital as it awaits the completion of a farm-out agreement for Thali.

It had placed around 138.7mln new shares at a price of 0.375p each, a 10.7% discount to its closing price of 0.42p last Friday.

Chairman and chief executive Jeremy Asher said the placing had been carried out to “mitigate the risk of running low on cash” as the company completed the farm-out of a 24.5% working interest in its Thali licence to Australia-based private company OiLR.

The farm-out will provide US$7.5mln towards the cost of the NJPOM-3 well at Thali, which has an estimated total cost of US$15-16mln.

Tower will also receive an overriding 10% royalty from the contractor's share of production to cover costs already sunk into the well, with the agreement expected to be signed off formally on 15 April.

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on 07/16/2015